Storm over Sabden

As the VIX, a measure of the implied volatility of the S&P 500, continues to decline, I can’t help but wonder if the market hasn’t become too complacent. Perhaps, as the movies teach us, the unnatural quiet portends the doom of our beloved hero, the S&P 500. Or, does it?

Bloomberg did a little digging and published an article that puts the current market returns and low volatility into historical perspective. To summarize:

•The market is off to its best start since 1997.

•Actual volatility of the S&P 500 has declined to 0.43% from a 5-year average of 1.08%; the largest decline since the 1930s.

•Stocks gain an average 17% per year when volatility is this low.

•In January, approximately $37B flowed into equity funds. In fact, deposits into equity funds are the largest in 9 years.

•The current PE of the S&P 500 of 15 is 9.3% below its 16.4 average over the last six decades. And, analyst surveyed by Bloomberg expect S&P 500 earnings to increase 6.7% this year and 11.6% next year.

•The last time volatility was this low was in 1995 when the S&P 500 went up 34%.

•Most importantly, in each of the 9 instances when volatility has been this low the S&P 500 has ended the year higher.

So, yes, it is quiet…maybe too quiet. But, that may actually be a good thing. Here at CLS we continue to be constructive on equities relative to bonds and to find ways to increase equity allocations in the funds.


To read the full Washington Post/Bloomberg article, click here 


The S&P 500 Index is an unmanaged composite of 500-large capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks.  You cannot invest directly in an index.

This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance.