In this installment of Market Currents, Katie Nixon, Chief Investment Officer for Wealth Management at Northern Trust, demystifies the world of market volatility with Northern Trust Asset Management’s Deputy CIO and CIO of Global Equities Michael Hunstad.

Katie and Michael level set the discussion with a review of changes to the market’s structure since the Global Financial Crisis that have shaped its current volatility profile. They discuss the declining role of institutions in price discovery and the rise of retail investors, algorithmic trading, and the use of options leverage to explain how markets are more sensitive and reactive to new information. They also describe how market concentration among MAG7 and tech-adjacent stocks has, perhaps counterintuitively, muted market volatility in recent years.

Recent spikes in market volatility have demonstrated the role that quality has played — and can in the future play — in portfolio protection and expected alpha generation. In conjunction with quality, value stocks are poised to play a significant role in overall portfolio diversification, with value priced attractively relative to its own history and to higher growth segments of equity markets. Katie and Michael close with their thoughts on volatility during election cycles, and how emphasis on quality, value and low-volatility names can benefit investors post-election.

(0:52) – What is the VIX index, and what is its recent history?

(2:38) – What structural factors have driven recent market volatility and will likely impact the market going forward?

(7:09) – Is the market less efficient than in the past?

(8:13) – Is the rise of the “Meme Stocks” evidence of the growing importance of retail investors in price discovery?

(9:55) – How has high market concentration affected market volatility?

(13:25) – How did different market segments perform amid recent spikes in overall market volatility?

(16:28) – How have bonds affected portfolio-level diversification?

(18:01) – Is value another area that can offer diversification?

(19:45) – Do relative valuations between value and growth suggest a shift into value stocks may be warranted?

(20:51) – What happens to volatility around presidential election periods?

(22:57) – Should investors be afraid of what’s to come — or be taking advantage?