Wednesday, April 12, 2017
If you look at the performance of the CBOE Volatility Index (a.k.a. the VIX or fear gauge), which is a measure of market expectations for volatility in the near future, it appears all is well and investors expect no unexpected events. Barron's explained:
"…which brings us back to a central fact: the absence of volatility. The first quarter was historic for the CBOE Volatility Index...It ranged from 10.6 to 13.1, and its average level was 11.69, the lowest in an initial quarter since the VIX was born in 1990 and the second-lowest quarterly average since the 11.3 of 2006's final three months..."
The VIX remained stubbornly low last week, too, despite weaker than expected employment news, wage news, and generally flat economic data.
If you turn your eyes to the number of companies whose shares have reached new highs, you might form a different opinion about the steadiness of stock markets. Barron's wrote:
"…the squadron of stocks pushing 52-week highs at the New York Stock Exchange has shrunk from 338 on March 1 to 72 late last week…But, if the planet really is enjoying a synchronized economic recovery, why are we lunging at these stocks as if they were the only game in town?"
It's difficult to know how to factor in last week's air strikes against Syria, which registered as a tiny blip on the U.S. stock market radar. Some analysts say that's as it should be. The real drivers of market performance in 2017 will be tax reform and global monetary policy. Others are concerned involvement in Syria could lead to a reshuffling of political priorities and delay progress on domestic legislation.
The markets have been on high center for the past few weeks—floundering in a trading range. They may finally have their true test as corporate earnings begin trickling out over the next week. This earnings session will be the first quarter since President Trump took office. Will this earnings season be the catalyst that breathes new life into the markets, or the jolt that knocks it off its high horse? Stay tuned.
In times like these, diversification is critical.
Greg Womack, CFP
Womack Investment Advisers