It’s official… the stock market is now ‘on sale’. Panic selling has set in with the VIX trading above 45 – something we have only seen 7 times over the past 25 years. For those who resisted chasing extreme valuations the past 12 months – your patience has been rewarded. Valuations have come down. In turn, the longer-term risk reward is now more attractive than what it was only a couple of months ago. But these are rare times. For e.g., it was the only third time this decade that the S&P 500 shed more than 10% in two days.
VIX
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Buckle Up Buttercup…
Fasten your seatbelts – things could get bumpy. Trump has amplified the seeds of worry stating he was willing to work through a “bit of disruption” – as it will lead to longer-term gains. And whilst a recession was not on anyone’s bingo card last month – those probabilities are increasing.
How to Know When Markets are Panicky
Are markets panicking? That depends on who you ask. A short-term trader might see the ~6% move lower as significant. On the other hand, those who invest for longer-term (such as myself) see a ~6% move down as nothing at all. From mine, panic isn’t here yet. However, there is a measure which can help us identify when markets are overly fearful. And generally – they are great buying opportunities. But we are not there yet.