It’s oh so quiet!
Equity market volatility has dropped significantly in recent weeks. The VIX index is close to its lowest level since July and daily moves in stock prices are muted. In fact, the percentage of days over a one-month period in which stocks move 1% in either direction has dropped to zero. And this has been the case for the last six trading days. This, however, does not mean you should immediately turn more cautious. First, because there have been much longer periods of such extreme tranquility in markets. For example, between 26 June and 9 October 2018, a period of 76 trading days, there were zero 1% price moves over a one-month period. Second, while this metric is a strong contrarian indicator when volatility is high, hence the number of 1% moves during a one-month period is high, research carried out by my colleague Jamie Stuttard reveals that it’s forecasting power for both equities and investment grade credits is less accurate when things are quiet.
As a senior portfolio manager I use charts to illustrate financial issues every day. I tweet my favorites as @jsblokland and was named 'one of the 50 most important people for investors to follow in 2018' by MarketWatch.
Previous editions of the daily sketch can be found on my personal financial markets blog. All graphics provided are collected from Bloomberg data and public websites. They do not always reflect my personal opinion and may also not necessarily reflect the opinion of Robeco. Please cite all references or quote the original source if replicating content.