Despite Warnings from Investing’s Elite, Volatility Remains Historically Low

vix-fearThere’s no shortage of bearish sentiment amongst legendary investors these days, but despite their dire-sounding warnings, the equity markets remain remarkably calm.

Apparently, it’s a tough time to be a billionaire. They simply can’t find an asset they want to buy.

Many of the investing world’s elite have expressed bearish feelings recently, including names like Carl Icahn, Sam Zell, and Stanley Druckenmiller. George Soros even doubled his bearish bet on the S&P 500 this past quarter.

Yet the stock market simply yawns. Volatility, as measured by the VIX “fear index,” is historically low. That doesn’t mean there’s no cause for concern, however. From USA Today:

“The VIX is extremely low, but at the same time there are a lot of things on the negative side of the ledger that people should be concerned about, (but they don’t) seem to be focused on,” says Greg Rutherford, CEO and co-founder of Cavalier Investments. “The only thing we have to fear is the lack of fear.”

Rutherford ticks off a list of worries that could challenge the market’s current calm.

“(Price-to-earnings ratios) are extremely high,” he says. “GDP is weak. Corporate earnings have contracted four straight quarters. The world economy isn’t great. There’s downward pressure on oil prices again. And central banks continue to drop interest rates (due to weak growth).”

So why isn’t the market listening to the warnings?

The market “doesn’t see an event on the horizon that could cause the VIX (or fear) to spike,” says John Canally, chief economic strategist at LPL Financial.

The last time the VIX showed signs of life was in late June, when Brexit fears consumed the markets. That bearish surge was extremely short-lived, however — by mid July, the VIX had hit multi-year lows again.

Prior to that, the last large VIX spike was a full year ago, when China shocked world markets by devaluing its currency. The S&P 500 plunged 10% as a result, but again, quickly recovered.

Despite fears of a spike investor fear levels, the VIX could stay low for an extended period, if the stock market continues to grind higher into 2017, says Mark Arbeter, president of Arbeter Investments.

“Fear is low,” says Arbeter, “because stock market price action has been very calm.”

The iPath S&P 500 VIX Short Term Futures TM ETN (NYSE:VXX) rose $1.00 (+2.75%) to $37.34 per share in Tuesday afternoon trading. The most popular ETF tied to the VIX gauge has plunged more than 53% year-to-date.


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