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Alternative Market Briefing

Comment: Why stock market tranquility is unlikely to last

Tuesday, January 03, 2017

Matthias Knab, Opalesque:

Russ Koesterich, Head of Asset Allocation for BlackRock's Global Allocation Fund, writes on Harvest Exchange:

Ideally, the holidays should be calm. Thankfully the market is obliging. Equity market volatility, as measured by the VIX Index, recently dipped below 12, close to multiyear lows. We've seen this pattern repeatedly over the past 10 years and it rarely ends well.

We've been here before, most recently last summer. In late August I described the unusually low level of volatility. By early September the VIX Index had spiked roughly 70% compared to the August low. It repeated the pattern again around the U.S. election in November (see the chart above). We may be setting up for a similar pattern in early '17. Here are three reasons volatility is unlikely to remain this low too far into 2017.

1. Equity investors are alone in their torpor.

While the VIX and other measures of equity market volatility are flirting with historic lows, volatility in other asset classes remains elevated relative to the summer levels. Currency volatility, as measured by the CVIX, remains about 20% above the fall lows. U.S. bond market volatility, measured by the MOVE Index, is off the November high but stays 30% above the October bottom. Only equity market investors are convinced that volatility ......................

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