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Calamos Volatility Opportunity Guide

Large Daily Swings Reflect Structural Changes

Compared to its historic volatility (as measured by standard deviation), the U.S. stock market has been relatively calm since the end of the 2008-2009 financial crisis. Many believe that the calm was partly a result of the Federal Reserve’s actions to keep interest rates near zero and reflate assets.

The charts below illustrate the number of +/-3% and +/- 2% days in the S&P 500 Index by decade from 1950 through 2017. The decade from 2000 through 2009 clearly stands out as we experienced two drawdowns in the S&P 500 of more than 40% in a single decade.

market have experience more volatility

Despite the record low volatility and a lack of a correction until 2018 (not reflected in the charts), we are on pace to exceed the average from 1950-2000 by a significant margin. The overall trend is clearly up. A growing consensus holds that large daily swings, such as those that reappeared at the start of 2016, are more structural than temporary. One reason for higher structural volatility may be technology that has interconnected markets and increased the velocity of trading. When investors decide to de-risk portfolios at the same time, the result can be like a game of musical chairs in which each investor seeks to avoid being the last to hold an unwanted asset.

While technology gives investors better, faster information and the tools to respond, it also creates a transfer mechanism for volatility through algorithmic-based trading. This can lead to a scenario whereby a scare in one corner of the market can quickly spread and intensify.

Other forces driving market volatility include the effect of banking regulations that reduce the amount of capital committed to securities trading and liquidity and rebalancing by leveraged and short exchange-traded funds (ETFs).

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Disclosure

*Data projected for 2010 – 2020.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

Past performance is no guarantee of future results.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

The S&P 500 Index is considered generally representative of the U.S. stock market. Indexes are unmanaged, do not entail fees or expenses and are not available for direct investment.

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