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Why Volatility Could Be Worse

By Advisor Perspectives
Financial Services

Russ discusses why volatility has not been more severe, even though growth has softened.

With one Sunday afternoon tweet, President Trump reintroduced what had recently vanished from financial markets: volatility. By Thursday May 9th, the VIX Index, which measures implied volatility on the S&P 500, had reached a four-month high. With a trade deal with China now in doubt, or at least less imminent, investors are reassessing their views on the economy and financial markets.

How much worse can things get?

To answer that, investors should focus on two factors, which are more quantifiable than the day-to-day news flow: expected growth and financial conditions. For now, the latter offers some comfort. While it is true that a complete collapse in trade negotiations would send stocks much lower and volatility much higher, easy financial conditions are one reason the recent pullback has not been more severe. Even at 23 the VIX is well below its December peak and less than half the level it reached in February 2018 (see Chart 1).

Read more at Advisor Perspectives.

Photo: ☰☵ Michele M. F.

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