First, the VIX. Today the VIX sits at ~30, and the futures curve implies we won't see sub-27 until after May 2021:pic.twitter.com/6rb7R590Fd
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The closer we get to 2021, the more convinced I am that exchange EPS estimates are too low. Explanations below:
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A VIX above 27 for the foreseeable future should translate to higher cash equity industry volumes, much like we've been seeing for the whole of 2020:pic.twitter.com/2LuHB6GjsR
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With such a volatile 2020, do we really think 2021 will suddenly go back to "normal"? I doubt it, but analysts are projecting exchanges like 2021 will see a resolution of all the volatility producing catalysts we've seen this year:pic.twitter.com/8dAv9Ki3Jr
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2021 catalysts for further volatility: US/China tensions COVID vaccine rollout US election resolution & fallout First potential signs of worrying inflation No end in sight to deficit spending or debt ballooning
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Even at current projections, 2021 exchange multiples look attractive: VIRT: 12x CBOE: 18x ICE: 21x NDAQ: 21x CME: 24x MKTX: 56x
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Bottom line - while it's hard to predict volatility, 2021 has enough catalysts for market activity to stay elevated for the foreseeable future. 2020 chaos won't suddenly go back to normal on 1/1/2021. I'm betting exchange EPS estimates are currently underpriced.
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End of conversation
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