Don’t overthink market volatility…

Now I’ve heard everything.  Mark Mobius says low market volatility is tied to social media:

Social media is having a huge impact,” the executive chairman of Templeton Emerging Markets Group said in an interview during a visit to Tokyo. “It’s creating confusion with a lot of false news,” he said. “Ironically, it’s having a calming effect.”  “If you have all this confusing information, and you don’t know which one is true and which one is false, you say, OK, the heck with it, I won’t do anything.

My .02?  Analysts are espousing every reason for depressed volatility except the obvious: Bull markets lack volatility.  Just look at the chart below.  Today’s bull market is normal versus prior experience.  And low-volatility regimes have run for extended periods of time.  The current path below VIX 20 is less than a year old, which is still young by historic precedent.

So let’s not overanalyze.  Low volatility is a bull-market phenomenon.  And it seems obvious that bull markets cause depressed volatility, rather than the other way around.  We acknowledge that risk increases with the duration of low-volatility regimes, but the same can be said of other bull-market phenomena such as time spent above a moving average.

I’m a fan of Mark Mobius, and “left-field” theories are always welcome.  But can we please stop obsessing over the VIX?

By | 2017-05-18T11:17:10+00:00 May 18th, 2017|Categories: Market Strategy Report|0 Comments

About the Author:

Mark Ungewitter is a Senior Vice President & Investment Officer at Charter Trust Company. He was formerly Director of Portfolio Management at Investors Bank and Trust in Boston, Massachusetts. He holds an M.S. from Bentley University and a B.S. from Massachusetts College of Liberal Arts. He is a member of the American Association of Professional Technical Analysts.

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