Options Market Signals a Dire Picture for Stocks
If history is any precedent, the equities market might be on the cusp of a reversal.
The bear market in stocks may not be over yet.
Photographer: Joe Raedle/Getty Images
The unprecedented pace of the collapse in equities and ensuing rebound has left investors questioning where the intrinsic value of riskier assets really lies. While progress has been made in combatting the coronavirus pandemic and authorities have provided massive support for the economy and financial markets, one can’t look at the rally in the S&P 500 Index from its March nadir and deduce that only sunny days are ahead.
Historical data comes in handy to draw an objective conclusion as to whether the surge in asset prices is sustainable or has instead been driven by transient factors. But crises are rare, which means that historical “event-study” data are limited. Although time-series data are elusive, cross-sectional data are not. These are data that aggregate various sources of information and many thousands of data points at one particular point in time, serving as a rich multi-dimensional “crowd” source of information.