A turbulent 2025 has been remarkable as much for what didn\u2019t break as for what did. Financial markets and the wider global economy are looking to end the year in a fairly serene state despite Washington\u2019s bid to rewrite the global economic rulebook.<\/p>\n
The market suffered a relatively brief heart attack following President Donald Trump\u2019s chaotic April tariff jolt, but that healed pretty quickly. The major stock indices are set for healthy full-year gains, with annualized second-half growth rates for the U.S. and global economies eclipsing 3%. And to top it off, bond market borrowing rates have stabilized.<\/p>\n
Yet businesses, banks, economists and fund managers have talked of little else all year except uncertainty and upheaval.<\/p>\n
The disconnect is stark.<\/p>\n
Politics may explain some of that, but one other obvious explanation stands out.<\/p>\n
The ongoing artificial intelligence investment boom is both disruptive and uncertain as well as flattering to top-line growth and megacap stock valuations.<\/p>\n
But with bubble talk rife amid the AI frenzy, it\u2019s hardly a factor that should depress volatility.<\/p>\n
Likewise, expansionary fiscal policy in America, Germany, China and Japan may be underpinning growth but can hardly explain why bond markets are so calm heading into year end.<\/p>\n
And yet accepted market gauges of implied volatility – Wall Street\u2019s VIX \u201cfear index\u201d and the equivalent Treasury market MOVE gauge – are firmly under wraps. The former is below long-term averages of around 20, and the latter hit four-year lows within the past fortnight.<\/p>\n
The 42-day U.S. government shutdown may have exaggerated the bond market calm, with almost no official economic data coming out during that time. And two Federal Reserve interest rate cuts over the past two months clearly helped calm any bond market jitters, as did the central bank\u2019s decision to stop running down its balance sheet from next month.<\/p>\n
Perhaps a test of this calm will come with the likely torrent of delayed data over the next few weeks, with many also suspecting a Fed pause in its easing cycle in December. But it\u2019s hard to imagine any of it causing more than temporary ripples.<\/p>\n
For individual stocks, the puzzle is even more complicated.<\/p>\n
Societe Generale analyst Andrew Lapthorne pointed out this week that there\u2019s been a significant outperformance in the last quarter by high-volatility stocks – a painful hit for investment strategies concerned about the uncertainty and biased toward low-volatility, high-quality shares as a result.<\/p>\n
A so-called \u201ctrash rally\u201d that is most obvious in the small-cap universe has left many scratching their heads.<\/p>\n
The U.S. Russell 2000 index, which contains many loss-making firms, is the prime example. The best-performing factors in recent months have been low share price, high volatility, short interest and bad balance sheets.<\/p>\n
Lapthorne said this has clear echoes of the \u201cmeme stock\u201d frenzy of 2021 and the retail speculation that drove it.<\/p>\n
Importantly, the vast majority of options-related activity is now focused on these low-quality names.<\/p>\n
In effect, it\u2019s these \u201ctrash stocks\u201d that are drawing a disproportionate amount of the options plays, leaving the higher-quality and larger-cap stocks exposed to little or no such activity. That, in turn, is suppressing implied volatility gauges derived from the options market at both a single stock and overall index level.<\/p>\n
\u201cIt has been the most expensive, highest-volatility names that have experienced by far the most extreme positive performance,\u201d the SocGen analyst wrote. \u201cThese are precisely the types of stocks that quant models typically avoid or take short positions against.\u201d<\/p>\n
Complicated options speculation aside, a more prosaic reason for the resilience of markets cited by many asset managers is that there\u2019s simply an enormous amount of savings, wealth and overall liquidity still sloshing around the financial system. By way of example, this year\u2019s annual UBS Global Wealth Report showed global personal wealth rose 4.6 per cent in dollar terms last year, with total wealth net of debt and inflation now rising at a compound annual rate of 3.4 per cent since the year 2000.<\/p>\n
What\u2019s more, it said the number of so-called \u201ceveryday millionaires\u201d – those who have assets worth between one and five million dollars – has more than quadrupled since 2000 to about 52 million people. And this population collectively holds US$107-trillion in wealth, 2.5 times higher in real terms than it was 25 years ago and close to the US$119-trillion total held by those even richer.<\/p>\n
The scale of wealth makes it difficult for markets to go to ground for very long.<\/p>\n
\u201cBuy the dip\u201d is now so ingrained in market behavior – and has proven so successful for decades – that any shock capable of causing an enduring market crash now would have to be very large indeed.<\/p>\n","protected":false},"excerpt":{"rendered":"A turbulent 2025 has been remarkable as much for what didn\u2019t break as for what did. Financial markets…\n","protected":false},"author":2,"featured_media":280916,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":["post-280915","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-alberta","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-business","tag-ca","tag-canada","tag-canada-news","tag-canada-sports","tag-canada-sports-news","tag-canada-trafficcanada-weather","tag-canadian-breaking-news","tag-canadian-news","tag-economy","tag-education","tag-environment","tag-federal-government","tag-foreign-news","tag-globe-and-mail","tag-globe-and-mail-breaking-news","tag-globe-and-mail-canada-news","tag-government","tag-life-news","tag-lifestyle","tag-local-news","tag-manitoba","tag-national-news","tag-new-brunswick","tag-newfoundland-and-labrador","tag-northwest-territories","tag-nova-scotia","tag-nunavut","tag-ontario","tag-pei","tag-photos","tag-political-news","tag-political-opinion","tag-politics","tag-politics-news","tag-quebec","tag-sports-news","tag-technology","tag-travel","tag-trudeau","tag-us-news","tag-world-news","tag-yukon"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/280915","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=280915"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/280915\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/280916"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=280915"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=280915"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=280915"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}