Cboe Global Markets President and COO Chris Concannon opened the second day of the Cboe Risk Management Conference Europe reflecting on the market events of the last year, including volatility’s return to the market earlier in 2018, and looked at the opportunities and challenges that lie ahead.
Following the conference theme “Reading the Signals in the New Volatility Regime,” Concannon talked about market signals as we look at the current state of the U.S. market and economy.
Concannon discussed the state of U.S. markets and noted we have enjoyed the longest bull market in history, which began in 2009 when the S&P 500 was at 676, and has since rallied 323%. He explained the potential drivers behind the rally, which has been led by consumers, noting the S&P Consumer Discretionary sector is up 635% since 2009. In addition to increased consumer confidence, other positive factors have included increased GDP in the U.S., low unemployment, fast wage growth, increased corporate profits and excess corporate cash utilized for stock buybacks and dividends.
Concannon said that stock buybacks are also having an impact on the market, and more importantly, having an impact on total shares outstanding. The impact of total shares outstanding in the S&P 500 reduced by 7.7% in 2018 has led to higher earnings per share and higher dividends.
“When does the bull market end? I’m not going to make that prediction, but there are some factors and some signals, given the theme of this conference, that we should be looking for that could signal the end of the bull market,” he said.
Rising rates, a slowdown in the property market, emerging market issues and record low unemployment are issues to watch, said Concannon.
He then noted that many believe we could be heading into a period of higher volatility as we head into the mid-term elections and round out the year. With the Democrats potentially taking over the House of Representatives at the mid-term elections, Concannon expects that political turmoil in Washington could increase dramatically. All of these factors will have an impact on the markets.
“As we head into the fall of 2018, there are a lot of predictions around increased volatility in our market,” Concannon noted. “We have elections coming up, we’re seeing some evidence of this. We are seeing higher volumes in our VIX options and futures and higher open interest as we head into the fall.”
Concannon concluded his remarks with an update on Cboe business and stated that 2018 “has been the year of migrations.” He recapped the company’s technology migration schedule, which included the completion of the CFE and C2 migrations earlier this year, as well as the S&P 500 Index options (SPX) to hybrid platform migration in April. The company is currently prepping for its final technology migration -- the Cboe Options Exchange -- targeted for October 2019.
He also noted the successful launch of Cboe’s first corporate bond index futures, which launched earlier this week, and that the company plans to launch a second corporate bond index futures on October 8, pending regulatory review. (For more information, go to http://cfe.cboe.com/cfe-products/ibhy).
Concannon then welcomed keynote speaker Louis-Vincent Gave, founding partner and CEO of Gavekal, who gave his views on how the market will evolve in the coming months and years.