Morningstar Volatility Report: A Stable Week
The week was largely stable, rising manufacturing concern offsetting service.
Investing Specialists
The Morningstar Volatility Index (MVI) monitors changes in uncertainty about the future across the equity markets during the trading week. The MVI is a measure of the implied volatility of the average option on the individual stocks in the U.S. option market. The implied volatility of an option is a measure of both the upside and downside uncertainty about the future of the company on which the option is written. So, changes in implied volatility can be used to understand uncertainty about the future of stock prices, and how that future uncertainty reacts to news flow.
For more information about the MVI and Morningstar's option research methodology, I'd encourage you to download the free Morningstar Guide to Option Investing.
Broad Market Uncertainty
Uncertainty was flat in U.S. equity markets this week, with the Morningstar Volatility Index ending at 68% after remaining within 1 percentage point of that value throughout the week.
Sector Trends
Uncertainty around the information sector remained constant through the week at 47%, with just a 4% increase in telecommunications uncertainty to 52%.
Uncertainty about service companies fell 4% to 73%, driven by a 5 percentage piont decline in financial services uncertianty to 90%. Business services uncertainty rose 6% to offset some of the decline.
Uncertainty in manufacturing continued its rise up 7% to 73% as the rising trend in consumer goods manufacturing uncertainty continued from the previous week. The continued rise was led by uncertainty around the auto sector, with auto maker uncertainty rising to a staggering 228% on continued concern about the automaker bankruptcy process for Chrysler and GM (GM), the auto dealership cuts, and the subsequent auto inventory absorption effect and its ripples through the supply chain. Implied volatility in the consumer goods manufacturing business ended the week at a high of 126%, up from 113% at the close last expiration friday.
Size and Value
Uncertainty eased just slightly 2% on value stocks and rose just 1% growth stocks during the week, ending at 93% and 49% respectively, maintaining a great deal more concern regarding lower quality stocks. Uncertainy was flat in large caps at 69% and up less than 1% in growth stocks to 72%, showing that size has little impact regarding investor uncertainty about the value of the stocks.
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