In the past six months, financial markets have seen large downside moves in a quick period of time. Despite equity indices being higher during the same period, the scale of drawdowns has been large and surprising for many. This has been due to the scale of uncertainty in the real world, which is currently at past highs. With Tariffs taking the main stage and central bank policy taking a back seat, the road ahead looks more bumpy than estimated.
During this period, volatility indices across the asset classes witnessed large spikes. The S&P 500 VIX reached a high of 65, which is currently at 17; the oil VIX reached a high of 54, and the bond VIX reached a high of 136.
All these indices indicate that forwards 12 months are also likely to be more volatile as the world adjusts to new economic and political changes. This would bring focus on the possibility of a crisis in the financial and real-world impacting growth.
The seasonality factors in the short and medium term favour the same trends but whether it turns out to be a lead indicator for a growth crash will only the absorption capacity of the real world. Till then it is a world that moves on its toes every step to avoid any crisis.
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