Some indicators point to a complacent market lately. But find out how our team explored the reliability of indicators to determine what these indicators really mean.
Investors seem not so much complacent as confounded. The stock market looks fairly valued, not cheap but not overpriced; bonds currently hold some merit due to their safe-haven nature and ability to provide consistent cash flow. The overall economy looks slightly better than lukewarm, but still well shy of overheated.
So what’s all the fuss about?
Our team took a little at a big indicator, the VIX to dig deeper.
The Chicago Board Options Exchange Market Volatility Index (VIX) measures implied volatility in the stock market for the coming 30 days. Aka the fear gauge, the VIX also represents how investors perceive current markets’ risk and it currently sits at 11.8.
In early July, the VIX fell under 11 – a low we haven’t seen since 2011. We all remember 2007, when the housing bubble burst and the stock market plummeted – and when the VIX reached 85 during the peak of the crisis. One nervous camp says that this low VIX clearly signals investor complacency with the stock market, harbinger for a world of trouble.
But a low VIX doesn’t mean that markets will crash. Markets crash for reasons that make the VIX high and for reasons that create volatility – such as fear. Fear of war (think Iraq and Ukraine), terrorism, popping market bubbles or recessions great and small can all raise the VIX.
Interested in reading more? Read the full article on Morningstar.