It's not all in your head—policy issues are increasingly driving US market volatility

CIO Global Blog

19 Jun 2019

New research from the academic research team that created the Equity Market Volatility (EMV) tracker and the Economic Policy Uncertainty Index confirms what many clients have expressed to us over the last few years: Policy news, as compared to macroeconomic news, is increasingly driving market volatility. In particular, they find that trade policy concerns have experienced a massive increase as a source of volatility. The authors state that since March 2018, trade policy has gone from "a virtual nonfactor in US stock market volatility to a leading source."

Market volatility hasn't been abnormally high during the Trump administration, and the relative shift to policy factors versus macroeconomic factors is part of a long-term multidecade trend. Even so, this research indicates that investment analysts can't simply "focus on the fundamentals." Policy uncertainty will continue to play a role in day-to-day market volatility, creating risks, and opportunities, for investors.

Fig. 1: Trade policy has become an important driver of market volatility


Michael Crook, Head Americas Investment Strategy, UBS Financial Services Inc. (UBS FS)