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FOMO, Nvidia And ‘All-Time High Watch’
Goldman's Scott Rubner is "back on all-time high watch."
Writing Monday at the beginning of the last week of August, Rubner said that should the S&P manage to set its first record since mid-July, investor FOMO could take hold.
Recall that Rubner came into August bearish for a laundry list of reasons, not least of which were the challenging seasonals. His skepticism was borne out pretty much immediately, when risk assets swooned amid an improbably large VIX spike and a broader vol reset tha
When you mention vol reset, does it involve a particular asset or more typically cross-asset strats?? Or, is my question simple inanity prefaced mostly knowledge insufficiency? My hunch is me lacking even basic knowledge to posit intelligently.
Well, first remember that this discussion is always stylized. Nobody knows, precisely, to the penny and to the minute, who’s buying what, when and based on exactly what signals, levels and so on. That’s the first thing.
In the context of these stylized discussions, vol control re-leveraging / target vol “re-risking” as I talk about it just means historical (i.e., realized) volatility on the S&P 500. There are different windows (i.e., lookback periods) for that. One-month, three-month, etc. But it’s a sample. So, you calculate it by looking at observations over whatever your trailing window is. 21 sessions, and so on. Eventually, absent sustained large moves in stocks (and large daily swings are hard to sustain for prolonged periods), historical volatility will reset lower / “roll over,” at which point these strategies have the green light to add back equity exposure. Mechanically.
That’s the vol control discussion specifically. More broadly, “vol expansion” as I use it means a generalized reset higher into a wider distribution of spot outcomes, typically in a selloff (i.e., larger swings in the underlying equity index, in this case the S&P) which elicits a scramble for downside hedges (i.e., more expensive puts), evidence of tail hedge demand (e.g., higher VVIX, steeper put skew), higher realized vol on a slight delay as the lookback captures and incorporates the oscillations in the underlying, etc. All of that tends to collapse under its own weight sooner or later, and in modern markets it’s generally (read: almost always) sooner, as we saw this month.
With risk parity, this discussion gets a little more nuanced (and considerably more murky). You’re generally talking about portfolio vol there, the whole thing tends to be slower moving (certainly compared to CTAs, which trade on momentum signals, but compared to vol control too), and contrary to popular discourse, risk parity isn’t a monolith.