Volatility Is Extraordinarily Low


Not only has volatility left the building, it appears to have climbed on to a hammock to take a summer’s nap. Yesterday, the Chicago Board Options Exchange’s Volatility Index (the CBOE’s VIX) closed below 10 for the 10th consecutive day.

Some perspective will help put the streak, which ended today, and the current levels into context. Over the period of January 1990 (when the CBOE first had historical data) through June 2017, the VIX only closed below 10 on 16 occasions. To reiterate, over its first 27½ years, there have only been 16 days with a closing value for the VIX of less than 10. So far this month, there have already been 10 such days, bringing the cumulative total up to 26. (The VIX is a measure of the implied or expected volatility of S&P 500 options over the next 30 days. Implied volatility is the market’s estimated future volatility. In layman’s terms, the VIX tells you whether traders are paying a little or a lot to protect their portfolios against a downward drop.)

It’s not just the U.S. equity markets. Across the globe, the equity markets are pretty calm. Yes, there are some hotspots, but overall things are just peachy from the standpoint of volatility.

A state of calm also exists in the bond markets. Every bond fund category tracked in our Quarterly Low-Load Mutual Fund Update was in positive territory during the first half of this year. If traders were fearful of inflation or interest rate increases, we’d see some losses. Furthermore, spreads between high-yield (aka “junk”) bonds and investment-grade bonds continue to be near post-financial crisis lows. Low spreads are indicative of little fear about a rise in defaults, since credit spreads measure how much extra yield investors are demanding to hold riskier debt. Continue Reading »

More on AAII.com

Highlights from this month’s AAII Journal

AAII Sentiment Survey

Pessimism declined to its lowest level since last November, but still remains within its typical historical range. More about this week’s results.

This week’s results:
  • Bullish: 34.5%, down 1.0 points
  • Neutral: 41.2%, up 2.5 points
  • Bearish: 24.3%, down 1.5 points

Historical averages:

  • Bullish: 38.5%
  • Neutral: 31.0%
  • Bearish: 30.5%

Take the Sentiment Survey.

The Week Ahead

It’s going to be another very busy week for earnings with 136 S&P 500 companies scheduled to report. Included in this group are Dow components: Apple (AAPL) and Pfizer (PFE), who will both report on Tuesday.

The week’s first economic reports will be the July Chicago Purchasing Managers’ Index (PMI) and June pending home sales index, released on Monday. Tuesday will feature July motor vehicle sales, June personal income and spending, the July PMI manufacturing index, the July ISM manufacturing survey and June construction spending. On Wednesday, the July ADP Employment Report will be released. Thursday will feature June factory orders and the July ISM non-manufacturing survey. Ending the week will be July jobs data—including the unemployment rate and the change in nonfarm payrolls—and June international trade data.

The only Federal Reserve officials making public appearances will be Cleveland president Loretta Mester and San Francisco president John Williams, who will both speak on Wednesday.

Local Chapter Meetings

AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you! Upcoming Meetings »


Leave a Reply

Your email address will not be published. Required fields are marked *