Stock market volatility has fallen to multi-year lows

“Merrily, we roll along, roll along.”

Those Stephen Sondheim lyrics pretty much summarize the sentiment among a growing number of investors these days. Consider that the VIX—Wall Street’s so-called fear index—has plummeted in recent weeks to levels not seen before the volatility spike in the pandemic.

That’s true for the popular VIX index (which measures the S&P 500’s expected volatility for the next 30 days) and the lesser-known VIX1Y (which looks out one year). The VIX, for example, currently rests at just 12.9—down from 26 back in March of this year, as seen in the chart.

Source: Bloomberg, as of 06/30/23

The upshot: Equity investors are behaving as if they see very little turbulence ahead in the short and longer term compared to the last few years. Some of the key factors keeping a lid on expected volatility include:

  • Many investors have maintained a lower-than-average exposure to stocks so far this year, which means their attention is likely less focused on taking steps to manage stock market volatility.
  • The surprising resilience of the economy, the job market, and the banking sector has eased fears of an impending recession. In addition, July has historically been the least volatile month of the year1—another reason why we believe the next few weeks could potentially be smooth for investors. As we’ve noted before, calm waters can potentially have positive implications for portfolios.

 

Regardless, we will continue to watch the VIX and related volatility measures closely for real-time investor sentiment readings and adjust the portfolios if necessary.

This commentary is written by Horizon Investments’ asset management team.

Past performance is not indicative of future results.

1 Source: Reuters, 06/20/23, New US Home Construction Surges by Most in Three Decades in May

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