Volatility is creeping back into the spotlight, and according to market outlooks, it’s not going anywhere anytime soon. Equity volatility is expected to trend higher well into the second half of 2027. One of the key drivers behind this projected shift? A rise in correlation among stocks — a sign that macro forces are starting to take the wheel again.

Correlations tend to climb when markets are under stress or moving in reaction to broader economic themes rather than company-specific news. But sustaining these higher correlations comes with a catch: they typically require lower interest rates. In today’s environment, that’s a tall order — and the market seems to be reflecting this tension.

Recent trends are painting a picture of a weakening economic backdrop. Consensus growth expectations are slipping, defensive sectors are outperforming their cyclical peers, and yields — especially at the front end — have been declining. Taken together, these shifts point to an environment where higher volatility becomes not just possible, but probable.

Against this backdrop, positioning for volatility makes sense. One strategy gaining traction is going long forward variance on the S&P 500. This approach benefits from rising implied volatility expectations and aligns with the broader narrative of a bumpier ride ahead.

Another angle to watch is the divergence in fiscal stances between the U.S. and Europe, particularly Germany. This divergence may fuel differing volatility profiles between regions, offering an opportunity to play the US-Europe volatility spread. Specifically, there’s continued interest in buying the Jun 2025/Jun 2026 forward variance spread between the S&P 500 and the Eurostoxx 50 when it’s trading below zero — a tactical bet on volatility widening between the two markets.

As macro uncertainty builds and correlations rise, volatility strategies are coming back into focus. For those with a long-term view and an eye on macro shifts, the next few years could be prime time to capitalize on the evolving landscape.