Not Being Invested in Low Volatility Market ‘Can Be Costly’

Not Being Invested in Low Volatility Market ‘Can Be Costly’

Not Being Invested in Low Volatility Market ‘Can Be Costly’


Goldman Sachs in a Note to clients: “Not being invested in a low volatility market “can be costly””.

Many market strategists worry the low levels of volatility reflect market complacency, but Goldman Sachs (NYSE:GS) equity strategist explained that the low volatility is not so worrisome now.

In fact, it gives longer-term investors all the more reason to buy stocks, he said Wednesday.

However, “being underinvested during such periods can be costly,” he noted in a report. He noted that periods of low volatility tend to see above-average returns for risky assets like stocks.

“For example, cumulative price returns since 2009 are 172% for the S&P 500, compared with just 26% if the 10 highest return days each year were missed,” he said. “You have to be in it to win it.”

The S&P 500 has closed at least 1% higher or lower only 4X this year

Financial market volatility has slumped to historic lows despite a world full of political and policy uncertainty, a phenomenon investors expect will remain until the business cycle turns and economic growth falters, Reuters reported.

Such ultra-low volatility worries investors because the last times it was so low in Ys 1993-94 and Y 2006-07 major market dislocations followed, respectively, the US bond market rout of Y 1994 and the global financial crisis of Y 2008.

This time, volatility has been crushed despite the proliferation of political risks from the global rise of nationalism and protectionism, Brexit, and the election of US President Donald Trump, all of which were meant to undermine market stability.

But they have not.

Record low interest rates and central bank stimulus around the world have suppressed returns, pushing usually cautious investors like pension and mutual funds to hold more equities than they normally would.

Wednesday, the US major stock market indexes finished at: DJIA -57.11 at 21410.03, NAS Comp +45.92 at 6233.92, S&P 500 -1.42 at 2435.61

Volume: Trade on the NYSE came in light at 829-M/shares exchanged.

  • NAS Comp +15.0% YTD
  • S&P 500 +8.9% YTD
  • DJIA +8.6% YTD
  • Russell 2000 +3.4% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.33) Bullish (0.26) Bullish (0.31) Bullish (0.43)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bullish (0.38) Bullish (0.34) Bullish (0.27) Very Bullish (0.54)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Bullish (0.42) Neutral (0.15) Very Bullish (0.54) Very Bullish (0.58)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.38) Bearish (-0.46) Bearish (-0.39) Bearish (-0.29)

Stay tuned…


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