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The Return of Volatility

Investments Risk

As we’re looking back at the third quarter and ahead to the rest of the year here at Halpern Financial, we’re thinking about what could be on the horizon. One major theme we see for the near-term future is VOLATILITY.

Last quarter, all of the major U.S. equity indices posted their largest quarterly losses in four years. Commodity prices crashed, sparking a chain effect in emerging market stocks, which had double-digit losses for the quarter. And after keeping all of us in limbo, the Fed seems to be on the cusp of raising rates for the first time in almost a decade.

Pretty scary, right?


What you see above is the CBOE Volatility Index (VIX), also known as the “fear index.” It’s an indicator of volatility (upward and downward price movements) in the S&P 500 index. Unfortunately, the VIX doesn’t tell us whether upcoming price moves are expected to be positive or negative—just that a move in either direction may be likely. A “normal” measure for the VIX is considered to be around 20, and you can see that in particularly “scary” times (like when the S&P 500 lost 11% in the last week of August), the VIX spikes.



But for the past four years or so, we’ve been seeing steady gains in the S&P 500 (blue line) without a lot of volatility (red line—typically corresponding with a big move in the blue line). We’ve been in somewhat of an artificial environment with the Fed’s monetary policy keeping bond yields near zero. Now that the factors above are converging, there could be a bumpy ride ahead.

The important thing to remember is that volatility is actually normal, though it might not seem like it from recent years. A shift toward more price movement could create opportunities to buy at a discount, rebalance to attractively-valued sectors, to do some tax-loss harvesting.

So as Halloween approaches, don’t be afraid of volatility. At Halpern Financial, we are well prepared with portfolio strategies that use diversification across several asset classes and sub-asset classes to smooth out the effect of the ups and downs of the equity market.

For more analysis of the past quarter and thoughts on the next, check out our most recent Market Review.

DISCLOSURE:
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Halpern Financial, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Halpern Financial, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Halpern Financial, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request


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