Volatility is on the rise

The U.S. equity market has been experiencing the highest level of volatility in several months. This is no surprise considering the list of current geopolitical events:

  • Israel – Gaza
  • Russia – Ukraine
  • ISIS terrorist movement

Also, with volatility at extreme lows, it really had no where to go but up.

The chart below of the VIX (known as the “fear index”) illustrates the recent spike in volatility and the lull in preceding months.

It is important for investors to understand that volatility is part of being a long term investor. As long as there is economic growth, a positive sloping yield curve, and equity fundamentals are solid, there is no need to fear the equity markets IF you are a long term investor.
  • The forward PE ratio on the S&P is in the 16x earnings range, far from a valuation bubble.
  • The yield curve is quite positive (short term rates are paying near 0%, the 10 year Treasury bond is yielding 2.42%, and the 30 year Treasury is yielding 3.23%.
  • 90% of S&P 500 companies have reported their Q2 earnings, and so far so good; the annualized growth rate is coming in at about 8.4%, significantly beating earlier estimates.
  • GDP figures for Q2 are coming in at over 4%, more than wiping out the negative numbers for Q1.
Richard Siegel, CFP®
Managing Partner, ARQ Wealth Advisors, LLC