EMPLOYMENT VERIFICATION FOR FORMER ZOLIO INTERNS, CALL 917-909-4188

We’ve seen stocks fall about 1% in the last few days, and pundits are already looking to point the blame. Some say geopolitical tensions are fueling the fire, with a recent major attack on ISIS in Afghanistan being the culprit. Others are saying the Syria strike is the real cause, bringing us closer to an apocalypse thanks to growing tensions with Russia. Ironically and paradoxically, some of these people are also warning that President Trump’s Russia connections bring instability and disaster for American firms.

These narratives don’t really make sense, but that’s not the point. The real point is there is growing nervousness. You don’t have to take my word for it, because there’s a mathematical measurement of nervousness in the market, and it’s spiking. The volatility index (VIX) has jumped to almost 16, its highest point since the election and about 50% up from its 2017 average. That spike started in earnest just this week, telling us that the fears are recent and intense.

But they’re actually not as extreme as you would expect. 16 was a historically low level for the VIX. Back in 2013, one of the greatest years in history for the S&P 500, the VIX stayed in the low teens and would spike to over 20 in moments of crisis. So the feeling of panic today is less than the feelings of panic that usually come to the market.

This doesn’t necessarily tell us we aren’t going to see a crash anytime soon, but it does tell us that the markets are far from a real panic in the conventional, traditional sense of the term.

With that in mind, a look at the SPDR S&P 500 ETF (SPY) over the last year tells us something interesting. We have erased the gains made in February and March, but we’re still up over 3% from the start of the year. That’s a double-digit annualized return. And buying now will make that kind of annualized return much easier to enjoy than it was a month ago.

That will probably incentivize buying over the short term, but when and to what degree is unknowable. Unless a true black swan hits the market in the form of low earnings (so far, earnings season has shown considerable and accelerating EPS growth), some major geopolitical catastrophe, or something else. But assuming those long-tail risks don’t materialize, the momentum in the stock market has not really broken yet.

That doesn’t mean there isn’t and won’t continue to be widespread panic, and that panic may translate itself into lower stock prices in the short term. Analysts need to filter this noise while understanding what it means for market participants if not for the market itself (the difference is subtle but important). Stick to the data, focus on the numbers, and try to identify what possible risks there are. That method will always provide a clearer market hypothesis than listening to the narrative-spewing panic of the short term.

Share This