The State of Realized Volatility: Ahead of the Fed’s rate decision

The State of Realized Volatility: Ahead of the Fed’s rate decision


Market volatility remains front and center as Wall Street awaits the highly anticipated Federal Reserve interest rate decision that is set for Wednesday, November 2nd. A 75-basis point rate hike is completely priced in but the real attention will be honed in on Fed Chair Powell’s commentary about the future.

Any hawkish or dovish rhetoric that is echoed by the Fed can have broader implications that will virtually impact all aspects of the financial market. Ahead of the meeting, market volatility will act as the pulse to future expectations.

PriceVol Indicator

PriceVol levels continue to track higher as the weekly 5-day average figure arrived at 10.4, a large jump above the previous week’s average reading of 7.9. The 10.4 handle is above the 10 marker which traditionally signals a bear market outlook. On a day-to-day front, the PriceVol indicator finished above the 10 spot four out of five times last week with Thursday topping out at 11.

Moreover, PriceVol is a branded investment tool which aims to compute the complete picture of market volatility that is replicated across the entire S&P 500.

Where has volatility been seen?

On a sector-by-sector basis four of the 11 S&P sectors have noticed PriceVol levels north of 10 over the past 5-trading days. Those levels were noticed in the Consumer Discretionary segment (NYSEARCA:XLY), with a reading of 12.8. Additionally, the Communications Services (NYSEARCA:XLC) area observed levels of 12.7, Energy (NYSEARCA:XLE) experienced PriceVol levels of 11.6, and Health Care (NYSEARCA:XLV) noticed elevated levels of 10.8.

In reverse, the lowest marked PriceVol levels were observed in the Materials (XLB) sector of the market. See a breakdown of each sector’s PriceVol level over the past week below:

The ASYMmetric S&P 500 ETF (ASPY) is fund designed as an offshoot to the PriceVol indicator. ASPY works as a quantitative long/short hedging strategy that seeks to offer investors a backstop against bear market selloffs by being net short, while also seeks to capture the majority of bull market gains, by being net long. See below the performances of all six ETFs discussed across multiple time frames.

Quoted from Various Sources

Published for: Ipodifier