Politics makes a huge comeback in the stock markets, exactly when the markets are not ready for it. Unlike other market disruptions which pan out as standalone events, politics sets off a trend resulting in a series of events. Throw in a few economic events from time to time between the political event sequence and you have abundant volatility.
Fear gets freely manufactured and manifests itself in a secular way. Extreme fear rarely spares company valuations. At best, it affects a few companies less or it hits them late. Early volatility tends to hit companies which don’t have strong institutional backers, have higher free float, and have a broad based ownership. It later spreads to all companies when buyers aggressively withdraw and sellers start to queue up.
We still haven’t seen volatility spread and it has remained restricted to pockets. Secular volatility in the markets can make a very different impact altogether. For the moment, it doesn’t seem to be on the anvil.
“The degree of risk present in a market derives from the behavior of the participants, not from securities, strategies, and institutions.”– Howard Marks
