17 November 2015 - Equity market volatility and its impact on returns

Equity market volatility and its impact on returns

 

U.S. equity markets remain mired in a narrow trading range this month, leaving them roughly flat for all of 2015.  With December’s potential interest-rate liftoff approaching, it is possible that equity market volatility could return, equaling or exceeding that experienced this past August and September.  Accordingly, we thought it would be timely to share with you an analysis of the impact of volatility on equity market returns, which is excerpted from a white paper we intend to release in December.

The Huygens Market Stress Indicator, and all the investment strategies incorporating it, use volatility prediction as their primary means of active risk management.  Historic index return data show that equity returns are consistently higher than average in low volatility periods.  High volatility periods, on the other hand, have negative average returns...


Please note that the excerpts from client notes and market commentaries speak only as of the date that they were originally distributed.  We do not undertake to update them, and accordingly they may have become inaccurate with the passage of time.  If you have questions about any of our materials we invite you to contact us.

13 October 2015 - An abrupt return to a low-volatility environment - will it last?

An abrupt return to a low-volatility environment – will it last?

 

As of market close October 5th 2015, the Huygens Market Stress Indicator switched back to Offense, meaning our measures of equity market stress have returned to normal levels and a new lower-volatility market regime has begun.  The August / September high-volatility regime was significant and characterized by...

 

Please note that the excerpts from client notes and market commentaries speak only as of the date that they were originally distributed.  We do not undertake to update them, and accordingly they may have become inaccurate with the passage of time.  If you have questions about any of our materials we invite you to contact us.

22 September 2015 - Has the U.S. equity market entered a new volatility regime?

Has the U.S. equity market entered a new volatility regime?

 

Our Market Stress Indicator has remained in defensive position for 4 weeks, signaling ongoing risk of further downside volatility.  This is a very long time for our system to remain defensive, and this is not consistent with a short selloff within a broader bull market...

Please note that the excerpts from client notes and market commentaries speak only as of the date that they were originally distributed.  We do not undertake to update them, and accordingly they may have become inaccurate with the passage of time.  If you have questions about any of our materials we invite you to contact us.

04 September 2015 - Our Indicator history

A brief update on our strategies in light of recent equity market volatility:

  • Defensive position - At market close Friday August 21, in response to the increase in volatility, our indicator switched to defensive positioning.  As a result, on Monday August 24, we positioned our Pilot accounts to bias toward treasuries, and we positioned our Mariner tactical hedged equity strategy to market neutral.  
  • Opportunity - While we don't like to see the investing community suffer losses, these are the times a purely systematic approach that takes the emotion out of the investment decision can outperform.
  • Where is the bottom? - Because our system takes a daily view of the market and makes a prediction of the risk of investing for the following day, we don't focus on calling a bottom.  When our daily indicator calls for more offensive positioning our system will adjust accordingly. 

 

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Please note that the excerpts from client notes and market commentaries speak only as of the date that they were originally distributed.  We do not undertake to update them, and accordingly they may have become inaccurate with the passage of time.  If you have questions about any of our materials we invite you to contact us.

24 August 2015 - Indicator switch to Defense

Many of you know we have been commenting on latent risk in the U.S. equity market this summer.  Our concern has been that the S&P's extremely narrow trading range in 2015 through the end of July was anomalous and unsustainable.  Obviously latent risk has now become realized risk, as market volatility has escalated dramatically over the past several trading sessions...

 

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Please note that the excerpts from client notes and market commentaries speak only as of the date that they were originally distributed.  We do not undertake to update them, and accordingly they may have become inaccurate with the passage of time.  If you have questions about any of our materials we invite you to contact us.

20 August 2015 - Narrowest S&P 500 trading range since 1965

Narrowest S&P 500 trading range since 1965

The U.S. equity market remains stalled.  The 6-month period ending July 31st ranked as that with the second-narrowest S&P 500 trading range of the past 60 years.  Only the 6 months ending Mar 31st, 1965 had a narrower range.  Although such low volatility is not predictive of future returns, it is certainly not likely to last.  August's recent volatility may be the beginning of a return to more normal conditions...

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Please note that the excerpts from client notes and market commentaries speak only as of the date that they were originally distributed.  We do not undertake to update them, and accordingly they may have become inaccurate with the passage of time.  If you have questions about any of our materials we invite you to contact us.

31 July 2015 - U.S. equity market quiescent

U.S. equity market quiescent


During the second quarter of 2015, our market stress indicator remained consistently in the offensive portfolio state.  All U.S. equity indices traded within a historically narrow range and ended the quarter essentially flat.  In fact, the narrow S&P 500 range in the first six months of 2015 placed the period in the lowest decile of all 6-month periods ranked by trading range going back to 1953.  Such a narrow range is rare, but not predictive of future returns.  In the middle 1990s the S&P 500 broke out of its narrow range to resume the strong bull market trend of that decade, but in 2007 the range breakout occurred to the downside with the global financial crisis.  What is clear is that periods of such low volatility are anomalous and not representative of the normal state of the equity market...

 

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Please note that the excerpts from client notes and market commentaries speak only as of the date that they were originally distributed.  We do not undertake to update them, and accordingly they may have become inaccurate with the passage of time.  If you have questions about any of our materials we invite you to contact us.