Market volatility and inflation are the key themes to watch in 2023, said Michael Hunstad, Northern Trust Asset Management's chief investment officer for global equities, who explained that "we're in a strange environment where stock and bonds remain highly correlated."
The Chicago-based Mr. Hunstad sees this high equity and fixed-income correlation and volatility continuing through 2023 and possibly longer, he said in an interview.
Investors should take note of the rise in what he dubbed volatility "shocks," that is, not just movement in the closely watched Cboe Volatility index itself, but a 5-point move or higher in the VIX in one day.
"That's what I believe to be a volatility shock, and the frequency of those is off the charts," Mr. Hunstad said.
He researched equity market volatility starting in the year 2000, and found roughly five of these shocks rocked the stock market leading up to the Great Financial Crisis in 2007.
"Since the crisis, we've experienced another 68 shocks--and 13 of those were just in the past 12 months," he said.
Mr. Hunstad found a similar pattern in bond volatility, represented by the ICE BofA MOVE bond index.