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June 12 2017

Stock market historians may dub 2017 the Xanax year. Traditional historians will probably choose a different moniker.

Stock markets in many advanced economies have been unusually calm during 2017, reported Schwab’s Jeffrey Kleintop in a May 15, 2017 commentary. The CBOE Volatility Index, a.k.a. the Fear Gauge, which measures how volatile investors believe the S&P 500 Index will be over the next few months, has fallen below 10 on just 15 days since the index was introduced in 1990. Six of the 15 occurred during 2017. The average daily closing value for the VIX was 19.7 from 1990 through 2016. For 2017, the average has been 11.8.

Investors’ calm is remarkable because 2017 has not been a particularly calm year. We’ve experienced significant geopolitical events. For example, the U.S. launched a military strike on Syria, and dropped its biggest non-nuclear bomb on Afghanistan. There have been terrorist attacks in Europe, along with discord in the Middle East. The European Union has been unraveling. The U.S. government has shown unusual levels of disarray, and the U.S. President’s passion for Tweets has stirred the pot.

Just last week, the future of Brexit was thrown into question when Britain’s snap elections produced a hung Parliament (no political party has a majority). How did investors react? Barron’s reported the European markets shrugged off Thursday’s election results and moved higher on Friday, offsetting some losses from earlier in the week.

In the United States, Former FBI Director James Comey’s testimony didn’t have much effect on stock markets last week, according to Barron’s. However, comments from Goldman Sachs cautioned the trade in big technology stocks, which have accounted for about 40 percent of the Standard & Poor’s 500 Index’s gains this year, was too crowded. The ensuing clamor resulted in the NASDAQ losing 1.6 percent for the week and the S&P 500 finishing slightly lower.

Geopolitical events do not appear to have the impact they may once have had. The Fear Gauge finished Friday at 10.7.

Sources:
http://www.schwab.com/public/schwab/nn/articles/is_the_stock_market_just_quiet_or_is_it_too_quiet
http://www.cboe.com/blogs/options-hub/2017/06/02/vix-index-closes-below-10-again-as-professor-called-vix-level-the-biggest-financial-mystery
http://www.cboe.com/products/vix-index-volatility/vix-options-and-futures/vix-index/vix-historical-data (Click on “VIX data for 2004 to the present,” then go to 6/2/2017)
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on “U.S. & Intl Recaps” and then on “Snap election shockwaves”)
http://www.barrons.com/articles/the-day-tech-stocks-tanked-1497070762

  • Data as of 6/09/20171-WeekY-T-D1-Year3-Year5-Year10-Year
  • Standard & Poor’s 500 (Domestic Stocks)-0.0030.0860.150.0760.1320.049
  • Dow Jones Global ex-U.S.-0.713.114.5-0.86.1-0.9
  • 10-year Treasury Note (Yield Only)2.2NA1.72.61.65.1
  • Gold (per ounce)-0.79.30.20.4-4.46.9
  • Bloomberg Commodity Index0.1-5.8-8.3-14.9-8.5-7.1
  • DJ Equity All REIT Total Return Index04.55911.55.7

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

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Bart A Zandbergen, CFP® is a Registered Investment Advisor with Optivest, Inc and a Registered Representative with Gramercy Securities, Inc. Investment advisory services are offered by Optivest, Inc. under SEC Registration and securities are offered through Gramercy Securities, Inc., member FINRA & SIPC, 3949 Old Post Road, Charlestown, RI, 02813, 800-333-7450.

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