Short- and long-term volatility are converging, another indicator that this is a market in a state of confusion. Despite rising volatility, it is still well below historical averages. We think this still provides a good environment for risk assets to perform well. The old Wall Street adage, “Stocks climb a wall of worry”, seems quite appropriate here.
Market volatility is an indicator of financial stress. Low or declining volatility environments may indicate favorable periods for equity investments, whereas rising volatility periods may favor sovereign debt and developed market currency exposure.