UPDATED (7-May-2020): I wanted to revisit this blog post with an update, partly because it's really interesting and worth highlighting, and partly because one of my followers on Twitter remembered the old article and mentioned it to me the other day.
Basically, in the original article (back at the start of 2018), I remarked how it looked like volatility was headed higher -- the charts made it look fairly clear. But also as noted at the time: "3 key themes coalesce: a maturing cycle globally, a turning of the global monetary policy tides, and increasing valuations across asset classes and markets"
Remember when we were talking about a maturing business cycle? Well it did mature, and then rolled over thanks to tighter monetary policy and the trade war, but the recession turned out to be limited to manufacturing and exports... and just as we were coming out of that thanks to policy stimulus, of course the virus hit and here we are now!
But onto the charts. The first one shows the rolling 12-month count of daily percent changes exceeding +/- 1% -- basically an alternative view of volatility. At the time of the original article below, the indicator was just starting to turn up from a 50-year low, and is now resolutely on its way up. One thing I find interesting about this one is how the volatility of this volatility indicator has gone up.
While I am bullish risk assets over the medium-term, I would say we can probably get used to the idea of higher volatility in the foreseeable future.
As a sentiment indicator, global average implied volatility has acted more or less as it usually does during a market correction/crash, and the spike and climax in volatility coincided with the market bottom (of course, decisive policy intervention also helped act as a circuit breaker).
As to what happens next with the path of volatility, we should expect a degree of normalization, but I think we find a new higher floor in volatility over the next 12-18 months. Here's why: I can give you my list of reasons why I'm bullish/optimistic (and I think the rationale is compelling), but I can equally imagine a series of scenarios and likely/certain risk events on the horizon.
Furthermore, I have this sense that we live in an age where social media has become a dominant information source (which is a blessing and curse - given how emotions and misinformation can infect the flow) and paired with democratization of markets (zero trading costs, easy to trade via an app in small size, access to information) we might start to see more manic markets.
Another thing is, I look across screeds of surveys, market indicators, positioning data, and of course am privy to a hefty flow of anecdotal evidence, and my summation of that is that investors are fairly lightly positioned for the most part. Pessimism is high: that creates seeds for "virtuous volatility" - where markets can rip higher in a more erratic fashion... in fact, once everyone gets back to business, and this pandemic is over, there is a good chance that we find a global economy overstimulated, and a relief euphoria could take hold... possibly creating a dot-com style euphoria bubble in equities. But now I'm just off and wildly speculating.