LIVE MARKETS-Now's the time for vol to bounce back
SPY•Volatility gauges seen rising from recent lows
Volatility gauges should, at long last, start to rise from their recent slumber, Morgan Stanley says, arguing investors should demand greater compensation for the amount of ambiguous situations they are facing.
The VIX .VIX dropped as low as 13.8 on Friday, its lowest since December 26, with gauges of currency volatility also low.
But Morgan Stanley strategist Andrew Sheets says there is plenty for markets to be uncertain about, and these indices should be higher.
Morgan Stanley flags multiple sources of market uncertainty
Currently markets see around a 60% chance of a September rate hike from the Federal Reserve, which Sheets says is a result of ambiguous remarks by Chair Kevin Warsh at his much-discussed Jackson Hole speech in late August.
Then, there is what the U.S. Treasury's buyback announcement means. Is it notable that it was tiny, or that they did it at all?
Also on Sheets' list are the implications of the staggering amount of AI financing, as well as what happens with global energy markets, and the effect of the wars in Ukraine and the Gulf.
"Some of this ambiguity is intentional. Some simply reflects an unusually wide range of possible outcomes," Sheets writes, saying that they are recommending investors position for higher volatility across macro markets.
He concludes: "Ambiguity has value. But when the range of outcomes is wide and the price of uncertainty is low, we think investors should demand more compensation for it."
