Stock Returns, Like Politics, Are Not Normal

Perhaps no consensus opinion has proven more incorrect than the notion that a Donald Trump presidency would lead to more market volatility. So range-bound has been the S&P 500 Index in 2017 that fully 60 percent of the days have produced a daily upside or downside return of less than 0.25 of a percentage point.

This remarkable listlessness led the VIX to close below the 10 level 18 times this year. With more than 60 percent of 2017 already in the books, the realized volatility of the S&P 500 stands at just 7.25 percent. That compares with 10 percent in 2006 during the height of the build-up in credit and leverage. Given the false signal of safety that low volatility imparted on both investors and policy makers during the pre-crisis period, there are important questions to be asked around the protracted decline in both the implied and realized volatility being experienced now.