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Home>UPDATE: Low volatility, correlations, and other confounding market riddles

UPDATE: Low volatility, correlations, and other confounding market riddles

UPDATE: Low volatility, correlations, and other confounding market riddles

10/02/2017

By Ryan Vlastelica

Looking at the market trends that don't make much sense

If you look at the U.S. stock market in a certain way, most of the trading action in 2017 makes sense. The labor market is strong, corporate earnings are improving, and there's a chance that business-friendly tax changes will be enacted--all obvious positives fueling a market that's been hitting record after record.

Looked at in another light, however, and there's a lot about this market that makes no sense at all.

Vincent Deluard, head of global macro strategy at INTL FCStone Financial, looked at what he called four big discrepancies in the global markets, or trends that made little sense given the economic environment.

Don't miss: Vanguard's chief economist discusses "the three big paradoxes" in the market (http://www.marketwatch.com/story/vanguards-chief-economist-says-artificial-intelligence-automation-stymieing-market-forecasters-2017-09-07)

The first issue he considered was the lack of volatility in the market. The CBOE Volatility index is currently below 10, less than half its long-term average of 20. While it has steadily traded under that average for years, the lack of swings has been particularly acute of late. The VIX recently neared its lowest level ever, and recent trading has been among the quietest in history (http://www.marketwatch.com/story/september-slump-on-wall-street-at-least-not-yet-2017-09-19).

Most investors have questioned the lack of volatility in light of the fact that equity valuations are high and there is a heavy dose of political uncertainty in the world, starting with the tense standoff between the U.S. and North Korea. Deluard, however, looked at it within the context of rising interest rates.

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