SHOULD INVESTORS BE WORRIED ABOUT LACK OF VOLATILITY?

July 26, 2017

The Standard & Poor's 500, Nasdaq and Dow Jones Industrial Average haven't lost 5 percent or more of their valuation all year. If this streak continues, it would make 2017 the first year without a notable pullback since the mid-1980s, according to The Wall Street Journal.

But given Wall Street's tendency to experience high highs and low lows, investors are worried that the bottom is bound to fall out before 2017 comes to a close, newly released polling numbers suggest.

 

In a survey of approximately 2,400 online users, more than 80 percent of respondents admitted to feeling anxious about a market correction within the next three to six months, according to the American Association of Individual Investors. Of these, almost two-thirds - 63 percent - said their fears were "somewhat" significant while 15 percent expressed had serious pause about stock values cratering.

 

Indexes up double digits since November
Almost eight months through 2017 and nine years into the market's bull run, stocks have soared. Even after excluding dividends, the S&P 500 is up 15 percent since Election Day, the AAII noted. The Nasdaq has risen 23 percent over the same stretch and the Dow is also up double digits since November 8, now sitting 17 percent higher.

 

Perhaps the most unusual element to the stock market's rally - and part of the reason why investors are concerned - is that it's gained so much without much movement in the opposite direction. Indeed, the CBOE Volatility Index, which is tracked by the Journal, has reached lows not witnessed since the mid-1990s.

 

Previous years were even less volatile
Unusual though a lack of volatility may be, the current happenings are far from unprecedented, according to University of Rochester's William Schwert, a professor of finance. For instance, this past February was the 18th least volatile month for the stock market since 1885, the earliest year in which data is available, the Journal reported. And so far this month, July is the 44th least turbulent among the 1,586 months on file.

 

Regardless, as the AAII survey suggests, many people remain stressed about the stock market's gains, given that indexes have often tumbled following lengthy bull runs. But Schwert says investors shouldn't let history determine what the future holds.

"I don't think it means anything," Schwert told the Journal, referring to the stock market's relative calmness. "There's no way to determine whether volatility is too high or too low. It just is what it is."

 

Polls are ultimately snapshots of what investors are feeling like at any given time. Other surveys paint a different portrait as to what the tenor is like among stock market participants. Indeed, just 26 percent of respondents in a separate AAII poll said they expect stock values to dip in the upcoming six months. That's the 10th time in the last 12 weeks that bearish sentiment has been lower than the historical average.

 

At the end of the day, the stock market's fluctuations are largely meaningless without the proper context. At Miles Capital, we strive to provide our clients with the insight and frame of reference they need to make smart asset management decisions that can further their portfolio performance objectives. It's what Miles Capital specializes in and it's what we strive to deliver through scenario analysis.

 

 

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SHOULD INVESTORS BE WORRIED ABOUT LACK OF VOLATILITY?

July 26, 2017

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