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Markets Update: A Return to Normal? Not So Fast…

There are more signs of markets and trading returning to normal.

Realized volatility has fallen, as has the VIX. It’s been 26 days since we saw a greater than a 4% price move (in March there were 13).

In line with that, spreads are back pretty close to normal (Chart 1). Although depth (representing the average value at the best quote) is still around 70% of prior levels.

Chart 1: Signs of markets and trading returning to normal

Average book size

However, as we start to open up economies around the world while still waiting for vaccines and treatments, there is downside risk to the markets. The recovery in stock prices has the Nasdaq-100 in positive territory for the year. The S&P500 is down only 15.8% from its highs.

Currently, the market seems to be pricing in a pretty quick recovery and return to near-prior revenues. In contrast, during earnings season a huge proportion of companies have stopped giving guidance. Data indicating CEOs and health experts are far less optimistic.

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