One day after Goldman cautioned that "global risk appetite is becoming increasingly fragile", the bank is out with another warning, this time predicting that volatility is about to spike, and listing over 300 stock specific catalysts why this will be.
In the latest report from derivatives strategist John Marshall, Goldman says that it expects volatility to increase over the next month both due to seasonal factors as well as midterm elections. As shown in the chart below, on average over the past 90 years, SPX volatility has increased 25% from August to October.
Goldman also reminds us that most major market corrections take place in October, and while some assume this is merely a coincidence, Goldman believes that "performance pressures for company managements (to meet full year expectations) and investors (final earnings season for the year) exacerbate shifts in investor sentiment at this time of year."
Adding to the upward vol pressure, 2018 has the added feature of holding a mid-term election - one where the Democrats are expected to win at least the House, unleashing even more political chaos - which has the potential to add uncertainty this year.
In addition to index level vol, seasonality is also strong in single stock volatility according to Goldman's analysis, which notes that since it is tough to make money buying volatility at the index level (due to the high volatility risk premium and the correlation risk premium), even with the wind at your back from seasonal factors, the bank prefers to focus at the sector and stock level to identify strong catalysts that could drive volatility over and above macro factors and with even more specific timing.
There is another reason why Goldman is urging clients to bet on single stock vol over index: According to Marshall - and as we first noted one month ago - stock event moves are getting bigger, which the bank attributes to the global trend of increased surprises and uncertainty of earnings. As confirmation, the charts below show the average 1-day moves on earnings releases relative to their average daily move in the month before/after earnings: "this data suggests volatility is percolating under the surface across stocks globally."
As a result of these observations, Goldman expects "the increase in volatility to be broad-based" and as a result the bank will be "focused on buying single stock volatility where events can provide a timing advantage."
So where will Goldman be buying vol?
To answer that question, Marhshall identified the top events across Goldman's entire coverage universe through year-end. The result is a list of 329 major events over the next four months that could drive large moves in stocks across US, Europe and Asia. This list focuses on the largest events that investors will focus on, without a specific bet on absolute direction, merely buying vol ahead of the actual event, with the intention of selling once vol rises as other traders seek to hedge their exposure.
Our list is skewed toward events in names under our analysts' coverage and those with liquid options markets. We look for option buying opportunities ahead of these events.
The following tables lays out all the 329 single-stock events the bank's analysts believe have the potential to move stocks; together with local region date/time.
Consumer catalysts through year-end
Consumer Staples, Energy, Financials catalysts through year-end
Financials, Health Care catalysts through year-end
Health Care catalysts through year-end
Health Care, Industrial catalysts through year-end
Technology catalysts through year-end
Materials, Real Estate, Telecom, Utilities catalysts through year-end