Tag Archives: market volatility

Parallel Worlds?


February 27, 2017

So far this year, the markets have performed pretty well, but you would not think so if your primary source of market information was the news coming out of Washington. I have never before seen such rancor and distrust in the political arena. There seems to be the media equivalent of a war taking place between the White House and most of the nationwide news services. After the bitterly fought Presidential election, there were hopes of a honeymoon between the political parties. Such hopes rested on both the new administration and the media “playing nice”. As we all know, that has not happened. Both sides have stayed on the attack since the election and there is no hint of compromise. How is this extreme political volatility affecting the market?

The standard gauge of market uncertainty is called the VIX index. This index has long been used to provide investors with a quantitative assessment of uncertainty in the market place. Historically the VIX index typically trades between the levels of 10 and 20. When the market moves above a VIX level of 20 it is believed that there is a lot of risk in the market. Conversely, when it is below 11 volatility is historically low and investors are not as concerned about market risk. The market is currently trading to a VIX level of 11.47.

Why is the market trading so well, with relatively low volatility, when the news out of Washington suggests a chaotic political environment? One explanation is that market players are looking past the ill tempered political shouting match to see a positive outlook for our economy. Perhaps investors are focused less on what they hear from DC, and more on what they see in the heartland. People have jobs, consumers are feeling confident in their spending, and investors seem willing to take some risk. The belief that tax cuts for both corporates and individuals are coming is still prevalent in investors’ minds. Moreover, news from around the world shows a willingness on the part of major corporations to attempt multibillion dollar mergers. Corporate executives and CEOs do not propose these risky deals unless they are confident in the outcomes for themselves and their share holders.

It appears that early 2017 has seen the development of two parallel, but seemingly unconnected, worlds of volatility. The first is market risk, as measured by the well known VIX. The second is focused on political volatility, which I will label PVIX. For now, our new PVIX index is very high. The market is currently saying that a high PVIX is not going to get in the way of an optimistic approach to allocating resources, making money, and investing. The market is firm and investors are feeling good about where they are.

Carl Gambrell


What’s Next?

Hilly RoadAugust 24, 2015

On Thursday of this past week I had outlined what I thought was a good “weekly”.  It was centered around an observation from a recent beach trip involving a little girl screaming frantically for her mother and looking for someone to help her.  That little girl’s scream for help transformed itself into investors’ screams for help on Friday as the market experienced one of its worse one-day sell-offs ever.  Following a week or so of uncertainty surrounding China and its economy, global investors finally acted with vengeance sending all the equity markets down.  For the week, the DJIA was down 5.82% and the S&P 500 was down 5.77%.  The source of all the fear was a slowdown in the Chinese economy and how that would affect all of the emerging markets.  We have waited and waited for an elusive 10% sell-off in the market and after Friday’s global move we have it.  The DJIA is now down 10.3% from its high but the S&P hasn’t hit the down 10% level just yet, and is only down 7.6% from its high. The key question is what’s next?

It has been a while since we investors have had that sinking feeling of dread following a bad week in the market.  Last year was one of the least volatile periods in recent history, but as I look at a market down 500 points in one day like this past Friday, I scratch my head wondering why and, more importantly, how do I feel about what just happened? Following the financial crisis we have been in a one-way, upward moving market.  The reality is that during that move several issues may have caused many investors to take risks with which they are uncomfortable.  There is no doubt that the long protracted period of ultra-low interest rates has caused many income-driven investors to seek returns outside of their comfort zone. These traditionally conservative income investors would prefer to have had their money in bonds or bank cds, but low interest rates forced them into higher-returning alternatives like stocks.  I question the commitment and staying power of this investor group as the market becomes more uncertain.

In times like last week, the strength and resolve of all investors get tested.  There are many positions of stocks that are being held by “weak-handed” investors.  A weak-handed investor is someone that is not really comfortable with their portfolio’s inherent risks.  No one knows what the near term holds.  If the market is going to continue to be volatile, investors should not panic but they should assess the level of risk and exposure to stocks with which they are comfortable, and adjust their portfolio to that level of comfort.  Market risk is difficult to gauge but no one knows your comfort level on risk better than you.

Carl Gambrell