Is Market Volatility the New Normal?

Chart of the Week: Is Volatility the New Normal?

By Portfolio Manager Matthew Erickson:

If you feel like the markets have become more volatile in recent times, you’re right. Over the past 30-plus years, the frequency of dramatic price swings in the stock market has gradually increased.

How can we tell? Because of the VIX. “The VIX” may sound like the name of the bad guy in the latest Marvel movie, but it’s not—it’s industry shorthand for the CBOE Volatility Index. The VIX tracks the price of certain near-term options on the S&P 500, providing investors with insight into how volatile the stock market is expected to be over the next 30 days. When the VIX is low, market conditions tend to be stable. When it’s elevated (a reading of 30 or higher), the trading waters can become choppy.

Back in the ’90s, the VIX went nearly 1,800 days without ever exceeding 30. In more recent years, we’re barely able to make it 100 days without the VIX cresting this threshold.

Market volatility
Sources: FactSet, Tier1 Alpha.

Numerous factors have led us to this point. Nonstop news cycles, so-called meme stocks and even economic policy (including interest-rate hikes) can create momentum and cause markets to move on a dime—even though knee-jerk reactions can derail long-term financial plans.

Regardless of how we got to this new normal, the takeaway is simple: Don’t allow the increased volatility in the markets to impact your investment discipline. The most successful investors have a plan and stick to it. Give us a call if you’re worried about market volatility. We’ll work with you to create a plan to help.

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