Here is an interesting thought.
With the huge migration to passive investment, much less analysis is going on in the equities markets. After all, passive investment only buys a basket of stocks to replicate the index. Passive investment managers don't analyze stock fundamentals.
That said, the active segment of the market is shrinking. Therefore, that active segment may be acting as a whip to create volatility. For those who remember having a flexible flyer sled, it is sort of like sledding down a hill with several sleds held together. The first sled creates the back and forth movement. The second sled feels the movement amplified. With each additional sled, the movement of the first is amplified even more. The person on the end of the "sled train" really gets whipped back and forth.
This might explain some of the recent volatility in the stock markets. The lead sled was keeping the chain stable for a long time without turning left to right. Now the lead sled (actives) is moving back and forth. The result is the sleds (passive) on the end of the sled train are switching direction more often creating a more volatile ride.
Something to think about. Will the last sled continue to take the intense whip?
