It’s Quiet, But Is It Too Quiet?

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Projected market volatility spikes in times of crisis then drops as fears subside. Current levels are below average, but the Fed’s path to normalization of rates may lead to more typical volatility levels.

The VIX measure of volatility dropped below 10 yesterday, the lowest level in 10 years. Meanwhile major stock indices are reaching record highs. Yes, earnings support this bull market and yes, the economic data is signaling better times ahead. Even the reluctant 10-year bond yield has moved up to over 2.4%. But risks are still present in the market. The French elections are behind us, but the European concerns regarding the execution of Brexit and the north/south growth divide are not. China has been stable lately, but April imports dropped 11% and worries about the property bubble and recent monetary tightening measures linger. In addition, there are still geopolitical hot spots looming in the background. Investors should be participating in this bull market but when markets are all going up it’s easy to forget about risk. Bonds can help balance risk. They will be there when you need them most, so don’t bail on bonds. Please follow the VIX, also known as the fear gauge, on page 24 of the Global Perspectives™ book.

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