FX Evolution: Secret Market Volatility Starts to Spike?

Markets had a brutal September and October. However, November was the opposite, nearly reversing all of the market’s losses since July’s peak.

While stocks are still set up to trend higher into the end of the year, the first half of December may see a mild pullback first. That would take some of the heavy speculation out of the market. And ensure that the remaining rally is a healthy one.

Suddenly, in just the span of a few weeks, market volatility has flipped. It’s gone from being near 52-week highs to a four-year low.

On one level, that’s a sign of complacency. When the Volatility Index (VIX) trades under 15, the market could be subject to sharp and sudden reversals.

Stocks have moved to overbought conditions in the short-term. And greed drives stocks right now. Historically, markets tend to fare well in December, and traders are betting heavily.

But there have been a few exceptions. That includes last year, which was a down market. And December 2018 was pretty brutal. So, there’s no guarantee.

Meanwhile, looking at the skew, a sort of volatility of volatility measure, signs indicate that a short-term drop may be in the cards in the coming weeks. And that there could be bigger issues past the holiday season.

Following the market’s sharp drop and recovery, investors have much to cheer for to close out the year. But going into 2024, it may be prudent to stay cautious given the unusually low volatility.

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