Are you concerned after Monday that geopolitical risk is about to derail a bull market that has a decent shot at becoming the strongest in history?
Of course you aren’t. And why would you be? This isn’t an environment where geopolitical risks are allowed to impact equity markets. Those days are over.
To the extent there’s anything left of the transmission channel that translates potentially destabilizing geopolitical outcomes to adverse market outcomes, that mechanism seems to malfunction somewhere between the initial move in FX and the always muted reaction in equities (where the dumb money is). In short, nothing ever makes it all the way down the line to stocks. The stock market has atrophied in terms of its ability to serve its traditional function as a discounting mechanism.
In a testament to this reality – and, by extension, in a testament to just how “successful” central banks have been at conditioning you to buy every dip and “right quick” – here’s a fun, easy-to-digest set of charts from Deutsche Bank which show that “SPX year-to-date realized volatility is among the lowest experienced over long history, with no >2% moves on a close-to-close basis, and a maximum drawdown of less than 3% over this entire year”:
But who knows, maybe there’s hope for a pickup in vol. yet. On Monday, VIX options volume hit a new daily record. The breakdown: 1.99M calls and 627k puts.