September Stock Market Seasonal | Stock Talk Podcast


A Volatile Year…

2022 has been a mess across virtually every asset class globally. Except for a few industries like domestic utilities, and a few energy related commodities like natural gas or lithium, asset class returns have been negative year to date and highly volatile at the same time. Music to the ears of short term traders, but the worst of both worlds to most longer term investors.

I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. And This is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?” for your money. This week we talk volatility in the stock markets.

Year to date there is almost no asset class I can find that has escaped a year of high volatility and negative returns. A few that have are the dollar currency and domestic utilities, and energy related equities and their commodities. Unfortunately, neither of these categories make up a large portion of the indexes here in the states so every broad index I track here in the states is down year to date.

The new york stock exchange on wall street in new york city.

Year to Date

Bond returns are negative with? High volatility to boot. Many investors were told that wasn’t the way bonds worked. Well when yields are falling that’s correct.

However, year to date, with the Fed raising short term rates so quickly, real yields have risen over 200 basis points in 10 year Treasuries and 425 basis points in 2 year treasuries. And volatility as measured by the bond market Move Index has skyrocket.

Since September of 2021. The move index has tripled in a year from 50 to 150. But guess what, there is a bit of good news. It’s beginning to decline off its highs. That’s good for not only fixed income investors but also for all risk assets if continues.

Which leads me to more good news few are discussing. That’s the news that behind the scenes, volatility is starting to head lower not higher. Might that reverse? Sure it might, but history says it is unlikely.

Remember way back in November and December of 2021, our investment team warned that the first half to 3 quarters of 2022 was likely to be a volatile, sloppy choppy mess? Well now, This is the chart of forward volatility, out through year end 2022, is now saying quite the opposite.

This is a continuous contract chart 5 months forward. So this is how you read this chart. Back in 4th quarter of 2021 it cost you about 23 to hedge through mid 2022.

Back in March of this year, when the markets were headed straight down to start the year, it cost you almost 30-31 to hedge, or buy insurance, for the next 5 forward months, out to August. Close to 40% more than only a few months earlier.

However, as of now, stock volatility peaked on June 14-16th right as stocks troughed. If this was a stock, chartists would be saying this is a triple top. Or an obvious, head and shoulders top. And now It’s broken an almost 9 month uptrend.

It now appears that higher moves in volatility look to be sold. That would be Opposite November 2021, through mid-summer, where pullbacks in volatility were bought, and “rips” higher in stocks were sold. Historically this trend reversal in forward stock volatility has led to big money managers buying “dips” in stocks not selling rips.

Stock market graph financial data on an electronic board on a laptop screen

The Conclusion

Peaking stock volatility behind the scenes? Folks this would be huge news. News few in the investment community are seeing yet just as few were discussing the coming volatility for the first half of 2022 in the 4th quarter of 2021.

September Stock Market Seasonal | Stock Talk Podcast
September Stock Market Seasonal | Stock Talk Podcast

September is historically the worst stock return month of the year. Case closed? Not necessarily, according to more analysis by Stephen Suttmeier’s data team at Merrill Lynch.