Talking Points:
• While the S&P 500 stands close to record highs, investor sentiment's serene facade is starting to crack
• As volatility measures trend higher, the CBOE Oil volatility index has surged these past months
• A market-wide deleverage may not have begun, but VIX futures positioning may indicate hedge demand
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Where do we look to gauge investor sentiment? A comparison of 'risky' assets to traditional 'safe havens' is the most common approach, but the actual change in positioning is often the last stage of a financial shift. Over the past weeks and months, we have followed a number of early warning signs showing complacency and the chase for yield have begun to break down. Recently, volatility measures (referred to as 'fear gauges' by many) have amplified their warnings. Not only are the measures of implied volatility trending higher across most asset classes, but we have seen particularly acute flareups for certain asset classes (such as Oil) and different positioning measures suggest a growing appetite for hedges. We look at volatility indicators and discuss market sentiment in today's Strategy Video.
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