Markets, and financial markets, in particular, give us a unique insight into our hopes, fears and aspirations: complex interlocking networks of instructions to buy and sell reflect the Zeitgeist more effectively than any rolling news-editorial ever can. So more than anything else, the current slump in oil prices reflects a collective lack of confidence in the future of the internal combustion engine; since the lockdown Amazon’s share price has soared because of a renewed sense of social connectivity, and the steady rise in Telecom stock is underpinned by a move to support working remotely and working from home.

As Alexander Wagner said, financial markets are “incentivized surveys for future expected outcomes”: investors gain by predicting outcomes correctly and markets reflect the sum total of their decisions.

With that in mind, and using available options data, the Chicago based VIX Volatility Index measures these market expectations on a scale of 0 for complete stasis (which never happens), moving progressively towards 100 as unpredictability levels increase (which happens a little too often): the index tells us a lot about market expectations. So, for example, the Index went from 25 to 66 within three months after the 2008 financial crash, and on 16th March this year it skyrocketed to 82 (from a low of 13) in response to the global challenges posed by the COVID 19 pandemic. On the same day, the Dow Jones Industrial Index returned its second worst day ever and three of the 15 worst days ever in the history of US Financial markets happened in the week running up to 16th March. 

Panic buying in supermarkets and panic selling on financial markets were seemingly going hand in hand. But not any more…

The VIX Index fell dramatically recently from 82 to 31 and the Dow Jones has soared to a high of 24,633 (a jump of over 2% on the single day of 29th April): so what’s happened in the last month to reduce volatility so significantly and at the same time heap healthy gains on equity markets across the globe? How and why has the Zeitgeist changed so radically?

Well, a few things come to mind. First of all, shares in companies with stable, global reach (think Amazon and Apple) have risen in value because China is slowly emerging from the first of the World’s COVID lockdowns and a number of countries, including Germany and France, are cautiously following suit: so investors are sensing increased prospects for global trading. And then, of course, there have been unprecedented Central Government interventions in international markets over the last month: more than £2.5 Trillion has either been pumped in or promised, with more to come if needed. Most of us grew up on a diet of Monetarism and Milton Friedman, but we are all Keynesians now: Quantitative Easing works and the free market is its biggest fan.

And fuelling all those sentiments, forged perhaps ironically by months of enforced lockdown, we are now seeing a fresh sense of social connectivity: within a matter of days, more than 750,000 people volunteered to participate in the UK Government’s Coronavirus Support Scheme and we are increasingly accustomed to public demonstrations of support for health workers across the world. The global Zeitgeist, a new world order, is gradually growing out of the anguish of COVID 19 and we can begin to see a different future beyond it: Financial markets are not immune to that sentiment.

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