The complacent market belies the uncertain conditions ahead. As markets see gathering storm clouds ahead, investors should look to some exchange traded fund strategies to limit portfolio volatility.
“Market volatility is unusually low, and we see it moving higher as the Nov. 8 U.S. presidential election approaches,” BlackRock strategists, led by Richard Turnill, said in a research note.
The CBOE Volatility Index, or VIX, is at the 11.7 level and is hovering around its lowest point this year.
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While the stock market may react to more macroeconomic factors and corporate earnings, BlackRock argued that volatility will pick up ahead of the U.S. elections. The equities market is notorious for its dislike of anything uncertain, and with unpopular candidates up to bat, we may witnessed wider swings as we head toward the polls.
Moreover, even though Democratic presidential nominee Hillary Clinton is currently leading, a Republican Donald Trump upset could cause even more volatile swings.
“We could see the uncertainty surrounding his future policies putting downward pressure on risk assets such as equities,” BlackRock said. “It could also trigger a near-term flight to U.S. Treasuries.”