How Long Will the Calmness on Wall Street Last?

With the level of uncertainty in the air it is a wonder we are experiencing such near record low volatility on Wall Street.  Is complacency to blame for the calmness on Wall Street?  Have we become so used to unsettling news and political turmoil that it’s now the new normal?  How do we explain the high performance we’re seeing with the unprecedented news we see regularly?  We can’t turn on the news without hearing about Russia, North Korea, Climate Control, Healthcare and many other globally important issues.  

This type of news typically affects the market in some way, although investors reactions to current events are also unprecedented.   Have we become so desensitized to political turmoil that we are complacently enjoying the high returns we’re seeing today?  If that is the case, there are some concerns that investors will be ill-prepared for an inevitable shock to the market.  

Historically, low volatility is good for markets, but sooner or later something’s got to give.  Usually, when the VIX is high, the S&P 500 is low, which could be a good time to buy.  When the VIX increases, the S&P 500 typically decreases.  If the VIX increases too quickly, however, investors show concern that the market will continue to decline and people begin to react irrationally.  This fear factor makes it difficult to trade during market volatility.  

Trade with Confidence During Low or High Volatility

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Having a stable trading platform is always important, but having the right software to handle increasing quote traffic when volatility returns will determine whether you can take advantage of the trading environment or get swallowed by it.  Experience the sophisticated trading platform of Takion for superior performance based on your unique trading style.  Great Point Capital is a member of FINRA.  

Great Point Capital has been serving the trading community since 2001.  Our 100+ prop traders actively trade the firm’s capital, specializing in equities and equity options.  We are one of the very few firms able to offer access to Takion Software Platform, enhancing your trading performance.  To earn to your maximum potential in times of low or high volatility, contact us today to speak with one of our knowledgeable staff.  

Wall Street Fear Gauge Near Record Lows

Historically, when the market is in a positive upswing, volatility will decrease, and conversely when volatility increases market performance usually decreases as investors experience greater risk.  The volatility, or fear gauge, has a direct impact on wall street returns and performance.

With the current fear gauge near record lows, we continue to wonder how long the market will remain this calm.

HFT on the Rise

High Frequency Trading (HFT) has increased to the volume of approximately half of all wall street trades.  With this rise in HFT and fewer market participants, when the market swings the other way we could see the impact with a large correction.  

With the level of HFT at record high levels it seems that HFT activity along with fewer participants will contribute to future wall street performance, and possibly direct rather than react to the volatility.  

Passive Investing

Passive Investing occurs when investors place their money in ETFs or index mutual funds instead of actively managed funds, and has been increasing over the last decade.  A recent report from Moody’s Investors Service states that over 28% of assets under management are in passive investments at the current time, and expects that by 2024 that number will increase to over 50%.

Passive Investing can soften volatility as new funds are continuously deployed into the same stocks, rather than moved between sectors, or out of stocks entirely into bonds or cash or commodities.

The new Fiduciary rules, in place since June 9, will make passive investments even more attractive, given the risk of higher fees and underperformance by actively managed funds.

More Frequent Option Expiration

Options on U.S. Stocks used to expire once a month or once per quarter, but now SPX, the index that tracks the S&P 500 stocks, has options that expire three times per week with some days having morning and afternoon expirations on the same day.  These all give investors new methods to offload risk in any time frame, lessening the need to buy and sell in the open market to adjust their positions.  Moreover, investors fine-tune their bets to the point that they don’t need to overreact to market moves, which can create volatility.

Great Point Capital has been serving the trading community since 2001.  Our 100+ prop traders actively trade the firm’s capital, specializing in equities and equity options.  We are one of the very few firms able to offer access to Takion Software Platform, enhancing your trading performance.  To earn to your maximum potential in times of low or high volatility, contact us today to speak with one of our experienced traders.   

How Long Will the Market Maintain This Low Volatility?

The volatility of the stock market directly impacts stock returns and overall performance.  History shows us that when the market experiences positive performance, volatility will decrease.  Conversely, with an increase in volatility, the market sees a decrease in returns and investors experience increased risk.  With the current state of low volatility, we have to wonder how long the market will remain calm, and when we should be concerned.  

The VIX is the ticker symbol on the Chicago Board Options Exchange (CBOE) that is used to measure the level of volatility in the market.  The VIX is supposed to represent the expectations for the next thirty days, and is commonly referred to as the “fear gauge”.  The VIX uses volatility of various S&P 500 index options, which is derived from the capitalization of 500 of the largest companies listed on the Nasdaq and New York Stock Exchange (NYSE).  

The VIX is one of the most followed equity indices, and is thought to be an indicator of the US economy.

VIX Hits Record Lows in 23 Years

On December 22, 1993, the VIX hit record lows when it reached 9.48.  The historical average of the VIX is typically close to 20, although it has recently been averaging under 10, and on May 9, 2017, the VIX closed at 9.77, the lowest in over 23 years.    

We typically see the market perform well during low volatile times, and that is surely the current situation, although we might wonder if the fear index is truly in line with investor confidence?  The political turmoil we see regularly these days usually brings about uncertainty, although it appears Investors are not yet concerned or waning in confidence.  

What Contributes to the Volatility of the Stock Market?

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News of mergers and acquisitions usually cause market activity, although nothing has been big enough to wake the current sleepy market.   One factor may be that there are simply less players in the market than ever before.  

Less Market Participants

The merger and acquisition business has been booming in spite of Antitrust laws that are designed to prevent monopolies that would hinder competition.  This increase in M&A has contributed to fewer market participants than just a decade ago.  

As stated in a July 2015 article from CNN Money, the number of US stocks publicly listed hit a peak record of 7,562 in 1998.  According to the Wilshire 5000 Total Market Index from 2015, there were only 3,812 publicly listed US stocks.  

Whether volatility is high or low, you can trade with confidence with an experienced team like Great Point Capital.  

Great Point Capital has been serving the trading community since 2001.  Our 100+ prop traders actively trade the firm’s capital, specializing in equities and equity options.  We are one of the very few firms able to offer access to Takion Software Platform, enhancing your trading performance.  To earn to your maximum potential in times of low or high volatility, contact us today to speak with one of our knowledgeable staff.