Stock exchange traded fund investors should not be dissuaded by the lackluster start to the year as the sudden spike in volatility may pass and markets begin to reflect further economic growth.
According to Goldman Sachs Group (NYSE: GS) derivatives strategists led by Krag “Buzz” Gregory, the CBOE Volatility Index, or so-called VIX, will average 16 in 2015, or about 3 points below its 19.3 reading late Wednesday, reports Callie Bost for Bloomberg.
The analysts argue that with the market in the middle of a business cycle, equities may experience diminished volatility and reflect stable U.S. growth of more than 2.5% this year.
“Low volatility is the norm, not an anomaly at this stage of the business cycle,” Goldman analysts said. “If the economy does remain robust as our economists expect, the gravitational pull for volatility is down, not up, at this stage of the business cycle.”
If the markets turn more complacent, traders can capitalize on the calmer conditions with inverse VIX offerings, such as the VelocityShares Daily Inverse VIX Short-Term ETN (NYSEArca: XIV) and ProShares Short VIX Short-Term Futures ETF (NYSEArca: SVXY).