On several occasions post-pandemic, I suggested we’re in the habit of mischaracterizing the nature of our species, and relatedly, of succumbing to recency bias when we describe the 2020s as somehow a break with precedent.
By and large, our story is one of conquest, conflict, avarice, chicanery and generalized wickedness, with intermittent periods of relative stability and localized goodwill.
In other words: Volatility’s the norm, calm’s the exception. The so-called “Great Moderation” was an anomalous period, and what we’ve seen since 2020 is merely a reversion to our historical mean (and meanness).
That said, the confluence of climatic oblivion, societal dissolution in the previously civilized world and the specter of great power conflicts (not to mention the worst pandemic in a century) feels uniquely inauspicious. The world, as I put it earlier this week, is burning, both figuratively and literally (Malibu’s on fire as I pen these very words, in fact).
Stocks, though, don’t care. Or at least not as long as the fires aren’t manifesting in too much economic tumult. Have a look at the figure on the right, below, from Goldman’s David Kostin.
The S&P’s on track for a 94%ile risk-adjusted return in 2024 (on a half-century lookback). Not too shabby, right?
“A friendly macro backdrop characterized by solid economic data, the start of a Fed cutting cycle and resolution of election uncertainty has been a key driver of both strong returns and lower volatility,” Kostin said.
This is particularly notable in the context of a year which featured not one, but two meaningful vol events (in late-July/early-August and then an aftershock following Labor Day), and a bout of election-related uncertainty.
As the figure on the left shows, 12-month rVol’s now trundling at just 12, a 31%ile ranking back to 1990. That’s in no small part thanks to a decline in macro uncertainty, which has receded to more moderate levels.
As Exhibit 2 from Goldman makes clear, it’s not only the cap-weighted S&P that delivered for investors in 2024. Every major US index, Kostin remarked, notched a risk-adjusted return ratio meaningfully higher than the long run median (measuring against their respective histories).
Keep calm and buy stocks, apparently. And whatever you do: Don’t read the news. It’ll scare you.
Also, don’t go to Haiti, on the off chance you were considering a cheaper vacation alternative in the Caribbean, especially if you are a male over the age of 60.
People in the US, and perhaps worldwide, have created narratives that define away “risk”; it’s Orwellian in a sense, complementing DJT’s own tendency to repeat lies until they are adopted by the masses as “truth.” The level of delusion about US markets is palpable. Leveraged ETFs, bitcoin ramp, deficits, etc., etc., are ignored b/c of belief that DJT will ensure that the market goes higher and higher. DJT must have the magic wand Hayek, Schumpeter, Von Mises and others overlooked. Prior to covid and DJT’s second coming, most accepted that business cycles may be delayed but not replaced by an economy and markets that grow into perpetuity. Yet that is exactly the narrative taking hold in the US. Trump’s election is perceived as eliminating or overcoming risks (charitably defined) associated w/ market imbalances, economic cycles, etc. It’s a kind of crazy under the surface much more bizarre than what I recall in the dot.com bubble or the months preceding the GFC. Much more subtle and perhaps, for that reason, at some point much more dangerous economically and politically.
For now, H and McElligott describe well the momo and options-related forces in control of markets.
Meanwhile there is some good news from an amoo vendor I’ve used in the past.
Note the reference to “pre-inaugration pricing”. :
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(pre-inauguration pricing)
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Runs great in auto-loading shotguns. “