Displaying items by tag: volatility

Volatility’s not your game? You’re sure now?

Well then, to tamp down volatility in a portfolio – or generate steady income -- fixed income assets are popular alternatives to dividend stocks, according to money-usnews.com. And the assets pay out a defined stream of income.

It typically assumes the form of bonds, which, essentially, are IOUs investors can reach into their wallet for from a number of sources, like, for example, governments and corporations.

That said, bond investing isn’t as easy as one-two-….you get the ides. Instead, since individual bonds are traded over the counter and mucho calculation is required to price correctly, it can be complex.

"Given the higher risks and costs associated with portfolios of individual bonds, and the time they take to manage, most investors are better served by low-cost mutual funds and exchange-traded funds, or ETFs," said Chris Tidmore, senior manager at Vanguard's Investment Advisory Research Center in Wayne, Pennsylvania. "This is particularly true in the case of municipal and corporate bonds, which are less liquid and harder to purchase than Treasury bonds."

Meantime, this for U.S. investors in exchange traded funds: you might want to mull over taking the splash into medium-term fixed income ETFs. according to marketwatch.com. Why, you might ask? They could not only dispense “attractive carry,” they also could translate into a “buffer” against the volatile returns in the U.S. equity market. That’s in light of the fact that the Fed’s path toward interest rate hiking’s immersed in a lack of clarity, Gargi Chaudhuri, BlackRock’s head of iShares investment strategy for the Americas, said.

Seems this wasn’t one of those prototypical meetings convened simply to discuss when to gather to conduct the next prototypical meeting. Ya da and Ya da.

Banking industry leaders from Grant Thornton recently gathered to chew over what prompted volatility to flare up and its impact on not only financial institutions, but the economy as well, according to grantthornton.com.

The one two punch of a lack of liquidity and asset liability management that wasn’t cutting the muster was at the root of the ills. The current environment has stirred plenty of uncertainty. Also deal in the Silicon Valley Bank run and the shuttering of Signature Bank, not to mention the wider sell off of stocks that unfolded at other institutions.

Meantime, typically, it might be sunny there, but in Miami-Dade County, employment in financial activities is burgeoning at a slower rate than last year, according to miamitodaynews.com. In fin-tech companies, prompted by the financial sector’s volatility, jobs are headed south.

The load down: in South Florida, jobs in financial activities climbed by 3.3% from March of last year to March of this year.

In an article for MarketWatch, Mark Hulbert discusses the collapse of the volatility index (VIX) over the last couple of months, and why it could be a harbinger of a sustained stock market rally according to historical data. 

According to Hulbert when the VIX reaches a fresh, 3-year low, it’s likely to remain low for a couple more months which implies further gains for equities. However, this view is contrary to the consensus expectations on Wall Street which see further erosion in the economic outlook, causing the economy to stumble into a recession. This perspective sees the low Vix as a sign of complacency rather than a ‘continuation’ signal.

Hulbert points to history. Since 1990, the best performing months from a risk and return perspective, have come with low VIX readings. Based on this data, investors should increase equity allocations as the volatility index declines and reduce it as it rises.

Another benefit of this strategy is that it dampens the impact of volatility on the portfolio which increases the odds that investors will stick to their investment plan and not let the market’s twists and turns shake them out of their holdings. 

Finsum: Many on Wall Street see the plunge in the volatility index as a contrarian signal, implying complacency. Mark Hulbert disagrees and sees it as the start of a sustained rally.

In an article for Bloomberg, Larry Berman discussed recent improvements in stock market breadth, and what it could mean for volatility. One defining feature of the stock market rally has been the limited participation as the bulk of gains have been driven by the tech sector and a handful of mega cap stocks. 

But, this is now changing as economic data continues to come in better than expected, and more parts of the market are joining the rally. According to Berman, this is an indication that the market rally could be in its early innings which means that recent weakness in volatility is likely to linger. 

Berman labels this as a ‘bullish divergence’. However, he notes that future contracts of volatility are not yet depressed as the front-month contract. This is an indication that the market does expect volatility to pick back up in the second-half of the year which is also consistent with many analysts who see the economy falling into a recession by then. 

He believes that some sort of catalyst is necessary for the bearish scenario to develop which isn’t evident at the moment. This is especially the case as many of the ‘risks’ faced by the market at the start of the year haven’t materialized. 

Finsum: There’s an interesting divergence in the market with front-month volatility depressed, while future contracts remain elevated. However, improving market breadth may signal that future month contracts may also move lower in the coming weeks. 

One of the surprising developmentds of 2023 has been the strength in equity markets and subsequent decline in volatility. Currently, the VIX is trading at its lowest levels in the last couple of years despite many headwinds such as a slowing economy and a hawkish Fed.

In Barron’s, Nicholas Jasinski discusses whether the decline in volatility is temporary or will it be sustained for the rest of the year. He notes that many of the market’s worries have eased such as Republicans and Democrats coming together to raise the debt ceiling, the regional banking crisis has seemingly passed, and economic data continues to come in better than expected.

On top of this, investors have been on the sidelines with most inflows into fixed income or defensive strategies, while short interest also remaisn elevated. The net result is that the S&P 500 is up more than 20% from its October lows, and many believe a new bull market has started. 

Whether these gains will sustain and volatility will continue trend lower will depend on factors like inflation, the Fed’s rate path, and credit conditions. However, it’s clear that the market has climbed the bulk of its ‘wall of worry’.

Finsum: Volatility is at its lowest levels since before the bear market began. How it will fare in the coming months will depend on inflation, the Fed, and whether credit conditions continue to tighten.