There’s an old market saying along the lines of, “…the financial markets will behave in a manner to confound the expectations of the majority of investors.” We’re seeing a little bit of this play out today.
One of the top concerns entering the new year was a likely increase in market volatility, stirred up by events in Washington and around the world. Uncertainty leads to fear which, in turn, leads to bigger price swings than otherwise might occur. But, while we’ve seen major price moves, they’re all in one direction – up. Uncertainty and fear have faded to the background.
How do we know this? Like most things on Wall Street, there’s an index that tracks it. The Chicago Board Options Exchange Volatility Index (VIX) is often called the “fear index”. The higher the number, the more fearful investors are, and the more likely we are to witness a rising level of market volatility. Low numbers are associated with confidence and complacency.
The VIX spiked the day after the November election, and almost immediately fell back. It’s now at levels historically associated with confidence and complacency.
Should this worry us? Remember the opening line of this article. Part of our duty to our clients is to insure they don’t get caught up in the moment, but keep their focus on longer term goals.
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