Useful charts and data points gathered together by Morgan Stanley’s strategists in a report dated Feb 11. Their understanding is that the rise in real yields has been the real trigger of the spike in market volatility.
Per SocGen’s real good quant team led by Andrew Lapthorne, « the use of the ‘Fear Index’ (VIX) as a predictor of future market performance has been rather mixed, with moves in VIX appearing more contemporaneous than forward looking. »
Well if VIX is not a great predictor of market returns what is ?
Markets have been unnerved by rising interest rates in the US, with ripple effects around the world. The most staggering event has happened on the VIX market with a number of funds/ETNs making the headlines after having lost tons of money. What should investors take from these events ? A couple of reflections and interesting comments seen here and there. Continuer la lecture de « Putting Recent Market Sell-off in Perspective »
US equity market could continue its run next year with the risk that investors fall into euphoria. Continuer la lecture de « Merrill Lynch Sees S&P 500 at 2,800 end 2018… With Some Risks »
Over the last 8-9 years, financial assets have had a good run, but now valuations look stretch and expected real returns are low. Continuer la lecture de « Where is the Cycle? What Should My Asset Allocation Look Like? »
For a Monday morning, Kepler Cheuvreux’s strategist Christopher Potts had a nice wake-up call for investors, recommending them to Underweight Europe and EM and go Overweight US and Japan… Continuer la lecture de « Sell When You Can – Kepler Cheuvreux »
Volatility is the most disturbing factor in financial markets and it’s something people should always keep an eye on. Measured by popular metrics like VIX or VSTOXX, it’s assimilated to the « fear indicator » of investors.
Looking at the long past of the US equity market (S&P 500 in chart below), you can see that volatility goes in regimes that can change widely but rely mainly on macro environment (expansion/recession) and it’s impact on the psychology of investor (P/E or valuation).
Volatility in equity market in perspective
Short answer: lower returns.
Picked up in a BofAML’s note. The figures in the following quote should have investors reflect on Buffett’s mantra: « Be fearful when others are greedy. Be greedy when others are fearful. »
« The Fed’s bull market: March 9th 2009…VIX 50, HY spread 1873, SPX 676, BKX 20; March 8th 2017…VIX 11, HY spread 373bps, SPX 2363, BKX 97; the bull market catalyst…extraordinary, unprecedented central bank policies. »
Facts make Buffett’s mantra right to the point.
Currently, the proba is about 20% according to Morgan Stanley…
With interest rates being negative for most of the bonds traded and issued around the world, the opportunity cost of cash is very high. But it’s probably the most valuable yet contrarian asset to own to help diversify risk in a portfolio.