The US stock market’s ongoing run of low volatility has inspired a torrent of commentary as the crowd struggles to make sense of the trend. Analysts at JP Morgan, for example, recently wrote that “a very low supply of economic surprises currently is by itself enough to explain the low level of market volatility.” Meanwhile, a strategist at Wells Fargo Investment Institute advised that the slide in volatility isn’t particularly useful for developing insight into future market activity. Whatever an unusually calm stock market implies, or doesn’t imply, here’s one more fact to consider: low vol is widespread across the major asset classes.
Using a set of proxy ETFs, I calculated the rolling 90-day volatility (annualized standard deviation) of daily returns across the broad sweep of global markets, based on data since 2012. I then computed the percentile rank for the latest values relative to the sample period. The result: vol is quite low across the board, at least from the perspective of the last five years of history, based on data through yesterday (July 12).
At the low extreme among the major asset classes: foreign REITs/real estate, based on Vanguard Global Ex-US Real Estate (VNQI). The ETF’s current percentile rank for volatility is just 3%. US equities via Vanguard Total Stock Market (VTI) ranks as third lowest for vol with a percentile rank of just below 6%.
At the opposite extreme: US junk bonds via SPDR Bloomberg Barclays High Yield Bond (JNK), which weighs in with a 43% percentile rank for vol.
Notably, all the ETF proxies for the major asset classes are currently posting volatility for the trailing 90-day period that’s in the lower half of the historical range for the past five years. In some cases, deep in the lower half — half of the ETFs in the chart above are below the 20% rank.
Debate will roll on about what the tranquil market landscape means, if anything. But this much is clear: the serene state of asset pricing in recent history is a global phenomenon across asset classes.