Summary
- The S&P 500 remains extremely stretched from a volatility perspective despite Friday’s 3% drop, with realized volatility still at historically low levels.
- Current volatility and dispersion patterns closely resemble those seen before major sell-offs in 2018 and 2020, suggesting caution is warranted.
- The S&P 500 dispersion index is at rare highs, indicating significant market divergence, especially between AI-heavy and other sectors.
- A normalization in volatility measures is likely needed, as spreads between constituent volatility, index volatility, and implied correlations remain historically wide.
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Despite falling by nearly 3% on Friday, the S&P 500’s volatility structure remained extremely imbalanced, with only minor changes overall. From both a realized and implied volatility perspective, the market remains stretched at this point. The steep sell-off had little impact
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