Is the market getting more jittery? On 20 November, the S&P 500 went from euphoria to fear, producing an intra-day difference of roughly 3.5 per cent upon digesting the undeniably strong Nvidia figures. That’s high on the list of intra-day swings. In terms of index points, it ranks number five since 1967. You may have seen news articles to that effect.
Do note, then, that this is totally irrelevant. Recent days are bound to make the top of such a list, due to steadily higher index levels. Five of the other top six swing days occurred in April this year, after Liberation Day. And the VIX, popularly referred to as the Fear Index, which did hit 26 on 20 November, ended November at 16, meaning the market did not worry for long.
Similarly, the Move index, which tracks expected volatility in the Treasury market, has been falling steadily for months now, ending November at half its level from April. Bond nerves are fairly calm for now.
As it happens, though, an interesting transatlantic divergence has emerged in the bond market. The yield on 10-year US Treasuries fell further in November, stretching this year’s decline to 56 basis points. Meanwhile, European long rates ticked further upwards. They have now increased by 34 basis points this year, meaning a path difference of 90 basis points. As it happens, however, this has just reduced the difference between them, as US rates were much higher to begin with.
While credit spreads rose slightly in Europe and fell marginally in the US, year to date they have fallen notably in Europe and stayed put in the US. I guess all of this goes to indicate a somewhat higher degree of optimism in Europe.
Judging from the financial media, a potential AI bubble tops the list of worries, followed by politically induced fog in the US. This includes a dearth of reliable statistics and a US Supreme Court hesitant to address the legality of President Trump’s hastily enacted tariffs. They may just state that it wasn’t really the right way, but they can be left in place for now. Something like that. Oh, and I’m sure you can find a host of other reasons, all of them logically sound and potentially devastating.
The psychological challenge in this situation is to remind yourself that you’ll never fret alone. If you worry about this or that, you can be sure that millions of other investors do the same. If so, many of them will already have acted accordingly, meaning that this particular reason to worry is already discounted in the stock market.
In short – I wouldn’t worry about the things that everybody else worries about. Total surprises will be a lot scarier, whether or not they qualify as black swans. They might even provide after-the-fact justification for the things that people do worry about.
Obviously, however, I don’t know what’s going to surprise me in the coming months and years. And if I don’t know what to worry about, I can’t worry about that either.
Finn Øystein Bergh joined Pareto in 2010, the first years in Pareto AS before joining Pareto Asset Management in 2015. He has previous experience as a journalist, chief economist and later managing editor in the financial magazine Kapital. Finn Øystein Bergh holds an MSc in Economics and Business Administration, MBA, cand. polit. (an extended master's degree) in political science and cand.polit. in economics. He writes the financial blog Paretos optimale, and has published several books on economics.
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