Goldman: Extremely low implied correlations add to the argument for owning equity index volatility in coming weeks.

Option-implied correlations across S&P 500 stocks have dropped to the lowest level in recent decades, weighing on index implied volatility despite surging volatility at the stock and factor levels.

While dynamics including the AI trade and popular overwriting strategies are likely to continue to weigh on correlations going forward, the importance of macro drivers will likely increase as the earnings season concludes and investor attention turns to the midterms and upcoming inflation data.