Only a matter of time until we see volatility bleed into equity markets: RBC's Amy Wu Silverman

• Risk markets tend to be bad at pricing amorphous risks, no matter how severe they are, leading to underpricing of 'P(doom)' (existential risk) in the options market.
• The market is currently focused on the 'right tail' (AI momentum trade), ignoring potential 'left tail' risks.
• Despite the S&P 500's rise, 73% of stocks have a negative beta, indicating narrow market breadth.
• The narrative that midterms will be a 'clearing event' is flawed, as political uncertainty and anti-AI sentiment will continue to weigh on the market.
• Treasury implied volatility (MOVE index) is significantly higher than equity implied volatility (VIX), suggesting bond markets are pricing more risk than equities.

RBC's Amy Wu Silverman argues that risk markets are currently underpricing 'P(doom)' or amorphous risks, particularly those related to AI. She highlights that while the S&P 500 is up, market breadth is narrow, and bond market volatility (MOVE index) is significantly higher than equity volatility (VIX), suggesting an impending bleed of risk into equity markets.