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Chart of the week

Recent market volatility just the beginning?

Volatility spiked this week as macro questions came to the fore. If history is any guide, volatility could remain elevated as the election heats up.

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August 9, 2024 | 2 minute read

VIX and MOVE spike around elections

Line chart showing expected volatility in rates (orange line) and equity markets (black line) steadily rising in the two months before U.S. Presidential elections from 1992 through 2020 and dropping once again after the election has been decided.

Source: Bloomberg Finance, L.P., FS Investments, as of June 30, 2024. Chart measures median changes in expected equity and rate volatility in the months leading up to and after U.S. presidential elections from 1992-2020. MOVE Index refers to the ICE BofAML U.S. Bond Market Option Volatility Estimate (MOVE) Index. VIX refers to the Chicago Board Options Exchange (CBOE) Volatility Index (VIX).

  • A prolonged period of relative stability in equity and fixed income markets ended abruptly last week, driven by a mix of lackluster economic data that called the economic soft-landing narrative into question, shifted Fed rate expectations and catalyzed global market volatility.
  • Markets settled somewhat this week, yet this recent bout of volatility may be the beginning of a new regime.
  • While markets are hyper-focused on whether the Fed can nail the (soft) landing, the U.S. presidential election is poised to keep volatility elevated through the remainder of 2024, as the focus shifts from rate cuts to the election. 
  • In a close race, market and economic outcomes are hard to predict, but one pattern seems clear: U.S. elections have historically triggered volatility. The chart highlights expected equity (VIX) and rate (MOVE) volatility.1 While rate volatility has been more pronounced around elections, both measures trended up during the two months leading up to an election.1
  • Against this backdrop, alternatives may provide investors with differentiated sources of income, growth—and diversification—at a time when markets may continue to face bouts of volatility.

  • Bloomberg Finance, L.P., FS Investments, as of June 18, 2024.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

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