As the Trump reflation commerce dwindles and the US president finds himself entangled in a flurry of controversy, volatility within the first half of 2017 is definitely falling.
The VIX, a measure of volatility within the S&P 500, plunged 20%, reaching the bottom degree since 2006. However, with geopolitical uncertainties mounting, how lengthy can low volatility final?
The VIX is significant, it exhibits how fearful buyers are, or in different phrases, the worth of worries. The gauge is instrumental in deciding to go lengthy or brief on not simply the S&P 500 however on the broader US fairness market.
Markets loved a sea of inexperienced within the first half of 2017, shrugging off shocks from Washington, North Korea and the UK elections. The curve of risker belongings goes up nevertheless the fear is that there ought to be extra downs accompanying these highs.
Volatility describes how a lot the market veers up and down, or worth fluctuations. Like a wave, for each excessive we see, there must be a swing down.
The markets are pushed by two opposing forces – worry and greed. The hassle with low volatility is that the stability is tipped means over to the greed aspect: the broader the hole, the more durable the autumn.
Previously, an unbalanced state of affairs like we’re seeing at present led to a sudden jolt within the markets the place asset costs fell sharply. The final time the VIX was so low was simply earlier than the Lehman Brothers crash on the cusp of the Great Recession.
As the European Central Bank and the Bank of Japan begin to navigate out of ultra-low rate of interest insurance policies, we should always see an uptick in volatility.
SOURCE: Sharp Trader – Read complete story here.