The “Data Dependent” Test

Volatility is rising again, just time for the first rate hike in almost a decade. Last week we saw the 5th largest weekly advance in the history the Volatility (“VIX”) Index.


The increase volatility of volatility over the past two years has been unprecedented (click here for our research on leading indicators of volatility).


Today, the VIX Index crossed above 25. Going back to 1990, the Federal Reserve has never hiked rates with volatility that high heading into the meeting. The highest VIX level heading into a hike was 23.96, occurring in May of 2000. After that meeting, a recession would follow in 2001 and the Fed would not hike again for another four years.


Data or Stock Market/Volatility Dependent?

The Federal Reserve has had an unhealthy relationship with the financial markets for a number of years now. Every time they seem close to hiking rates, the market sells off and they take a more dovish stance. It has become abundantly clear that they follow the stock market far more than economic data.

With the spike in volatility over the past week, the Fed will once again be tested when they meet this Wednesday. Will they prove their “data dependency” and finally hike or once again succumb to the short-term will of the stock market?

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.




Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts.  He is the co-author of three award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors previously held positions as an Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.

You can follow Charlie on twitter here.

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