29 October 2019

Thank You Bloomberg For All The Formidable Frights

"Halloween’s around the corner, with investors treated to fresh all-time highs in U.S. stocks and nary a trick in sight. But as any scary movie aficionado will tell you, the most formidable frights begin when you’re the most complacent.
This year’s compilation of Wall Street’s chilling charts highlights concern about a debt-laden Corporate America, eerie developments in volatility markets and the ills in industrial sectors of the economy. . . "
Here are the ghoulies that petrify the professionals.
These Are the Charts That Scare Wall Street
By        
Terrifying trade talks, skeletal earnings spook analysts            
‘Fear of Fear’ rise spurs nightmares of ‘Volpocalypse’ sequel
Bloomberg News
HERE'S JUST ONE:
Maxwell Grinacoff, derivatives and quantitative strategist at Macro Risk Advisors:
FRAGILE: Handle with Care  
– Looking at just top-line realized volatility gives a simplified picture of actual market fragility.  
"In statistics, the frequency of unusual moves is measured via kurtosis. In the chart shown, we calculate the 1Y kurtosis of S&P 500 daily returns, attempting to measure the frequency of tail moves and quantify the ‘fragility’ of the index by year over the past two decades.
We note that S&P 500 fragility has been steadily increasing over the past 5Y and is on pace to meet/possibly surpass last year’s metrics (think drawdowns like February and October-December 2018).  
Even in the doldrums of 2017, a 40 basis point move dictated a one standard deviation move in the index (based on an average 20-day realized volatility of sub-7%). That said, a 50-100 basis point move in the S&P was considered outsized at the time!
Worth noting that 2017 witnessed >0.50% daily returns ~20% of the year.
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