Goldman Says War or Recession Could Spark Volatility

Central banks tightening is supportive of risk appetite but historically a large shock such as a war or recession has been required to snap low market volatility, according to strategists at Goldman Sachs.

The low volatility “regime” currently plaguing the equity market is comparable to the last 14 cases since 1928, strategists Christian Mueller-Glissmann and Alessio Rizzi said in a research note published Monday. These periods tend to last almost two years with short-lived spikes and S&P 500 volatility around 10.

“Historically, volatility spikes have been hard to predict as they often occur after unpredictable major geopolitical events, such as wars and terror attacks, or adverse economic financial shocks and so-called ‘unknown unknowns’ (e.g. Black Monday in 1987),” London-based strategists said in a note.

“Recessions and a slowing business cycle have historically resulted in a high volatility regime across assets,” they added.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza