Morningstar Volatility Report: A Stable Week
Except for the autos, investors' concerns remained constant for the week.
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%. The index remained flat throughout most of the week, but spiked to 75% on Thursday on uncertainty about the future of auto industry shares.
Sector Trends
Uncertainty around the information super sector remained nearly constant through the week at 46%, 1 percentage point below the week earlier. This trend was constant across information companies.
Uncertainty about the future share price of service companies fell 2 percentage points from a week earlier to 71%, with the easing coming from lower uncertainty about the future share price of consumer and financial-services companies.
Uncertainty in manufacturing continued its rise throughout the week, spiking to 103% at the close on Thursday on uncertainty regarding bankruptcy filings by General Motors (GM), before settling to close at 80% on Friday after the release of GM bankruptcy filing details on Thursday night. Uncertainty regarding the future share price of automakers closed the week at 273% implied volatility.
Size and Value
The uncertainty spread between value and growth stocks increased 3 percentage points on rising uncertainty regarding the future of value stocks. The week ended at 93% and 49% for value and growth stocks respectively, with greater concern regarding lower-quality value stocks largely driven by the increased automaker concerns. The automaker worries caused a spike in the uncertainty spread between large caps and small caps during the week, but this spread disappeared with uncertainty closing the week at 70% for both large caps and small caps, after spiking to 79% for large caps on the automaker bankruptcy concerns.
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