Joined Nov 11, 2007
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Will Low Volatility Cause Us to Say “Do Svidaniya”

“Touchy, touchy. A stock market that could once be counted on to absorb any morsel of goodness and repel all the badness with vigor seems to be growing increasingly fussy as we hit the summer’s back stretch. After all, the catalyst for the latest retreat came from Poland.

Not the country you’d expect to bog us down. Investors have been ignoring this kind of thing for months, forging ahead and pushing markets to new highs. Yet this warning of a looming invasion in Ukraine was enough to overshadow the meat of a successful earnings season. Then there’s thedrip-drip of bad economic news out of Europe.

If this unsettling trend keeps up, all the wonderful gains we’ve reaped so far this year will disappear faster than you can say “do svidaniya”.

In fact, by one measure, they already have. With seven months under our belt in 2014, the average U.S. stock is down. Down, as in not up. The median total return of stocks in the Russell 300  RUT -0.29% comes in weirdly at a 1.7% decline this year,according to Charlie Bilello, director of research at Pension Partners.

He says persistent low volatility and the S&P 500′s historic streak of staying above its 200-day moving average for a whopping 426 trading days are the primary factors in soothing any bearish concerns that have picked up recently.

“Investors love nothing more than low volatility as it provides the illusion of safety and stability,” Bilello said. “Until the streak is broken, investors will naively assume U.S. equities are ‘risk-free’ and therefore preferable to all other asset classes.”

Speaking of “risk-free”, our call of the day says U.S. Treasurys are anything but.

Key market gauges: Russia, ugly Europe data, failed mergers are taking a toll on sentiment. Futures on the Dow  YMU4 -0.42% and the S&P  ESU4 -0.47% are in the red. Asia  XX:ADOW -0.29% closed down across all major indexes. Europe XX:SXXP -1.36% got tripled-socked by Russian worries, Italian recession news and disastrous German output data.

The quote of the day: “Better than tossing a coin? I think it may be worse … because….”

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