We see a storm cloud for U.S. equities far in the distance

Good morning U.S. stock market enthusiasts!

The historic volatility for all of the stocks that made it into our model rose yesterday for the first time in quite a while. It is a small, typical sized daily change (not an amplitude anomaly, but a directional anomaly).

What does that mean technically?
It means that yesterday, and for the past year, stocks had more price movement. They have a higher variance in daily price changes.

What does that mean for investors?
It depends if this signals a new trend of rising volatility.

If we see higher variance, then we see more risk and lower expected stock market returns for the next year. Hell hath no fury like unanticipated change.

If variance is at a new level and starts to rise and fall, then we wait and see. It takes coal off the fire of new risky stock demand.

If variance starts to rise and yesterday's reading is the low point, or trough of the variance readings, then avoid risky stocks. You can put money into risk-free assets earning 5% or more, or start looking at profitable, low risk stocks. Maybe this is when low-variance stocks might have an edge (we publish those too). An analogy for price variance hitting a trough...it is like when the Fed FOMC stops lowering interest rates and raises them for the first time. It is a tipping point in the market.

We will continue to report on this.
Jeffrey Cohen
Highland Park, Illinois
Registered Investment Advisor

This is not investment advice.
[email protected]
​+1.312.515.7333