We’re Back to Complacency… But it Won’t Last Long
Today’s note is an update on the surest bet in all of finance…
At DailyWealth, we know there are few sure bets in the financial markets… few “this is the case, and it always will be” statements we’re comfortable making. The market is just too messy for those types of claims. A particular stock-investment idea will work for years, and then it won’t. A commodity-trading strategy will work for years, and then it won’t.
But one “this is the case, and always will be” statement we’ll stick by is this: “Calm periods of rosy headlines and softly rising prices will always be interrupted by periods of wrenching volatility… and vice versa.” That’s just the way the world works. Scientists call this idea “reversion to the mean.”
One way to track market volatility is by watching the “VIX,” a popular gauge of market volatility and investor fear. As you can see from the two-year chart below, the VIX spiked into the 40s during last year’s European bank panic. It eased back to 15 this spring… and then spiked higher last month. But note that in the past few weeks, the VIX has eased back to its lowest level in two months. It will spike higher soon… it’s just a matter of time.