November 20, 2012
The macro view: After yesterday's surge, stocks behaved today in a manner more consistent with a Thanksgiving week, displaying muted volatility as the Dow Jones Industrial Average (INDEX: ^DJI ) and the broader S&P 500's (INDEX: ^GSPC ) daily returns added up to roughly zero (down 0.6% for the former, up 0.7% for the latter.) Similarly, the VIX, an indicator of the market's expectations for short-term stock market volatility, is back down at levels not seen since before the election (Oct. 18, to be precise.)
Seeing the VIX persistently below its long-term historical average makes me wonder whether I've overestimated the impact that all issues related to the fiscal cliff will ultimately have on stock market volatility. For one thing, if politicians are unable to reach an agreement to extend tax cuts and repeal automatic spending cuts by Dec. 31, the economy won't take the full $600 billion hit upfront on Jan. 1. Instead, the impact goes from zero and increases as a function of the length of time we encroach on 2013 without an agreement. As such, it is entirely plausible to imagine a December that is quiet, with low levels of trading activity -- i.e. the typical scenario for December.
The micro view: Another day, another bank restructuring. Last month, UBS announced a dramatic downsizing in its investment banking ambitions to focus on its wealth management activity. Credit Suisse is now embarking on a reorganization of its own, but one that's much less radical and -- to my mind -- less realistic, if one considers the new post-crisis environment. Credit Suisse is hard-pressed to go up against the likes of JPMorgan Chase (NYSE: JPM ) in the global investment banking arena. Meanwhile, JPMorgan looks well positioned to take market share in an industry that is now structurally less profitable, but also less risky. Click here to receive our premium report on JPMorgan, which includes 12 months of ongoing updates.