Prior to Monday, the VIX was close to its lowest level since before the financial crisis. While volatility spiked on Monday to 17.27, that is still below the long-term average of around 20 and well below the average seen between 2008 and 2012.
What does this mean for investors? With volatility still low and the economy slowing, the risk going forward is that any other unexpected events, whether a European banking crisis or something more violent, would be an unexpected shock to investors who have become accustomed to a steady stream of benign headlines.
Still, I wouldn’t advocate getting out of the market in anticipation of another potential crisis that may not occur and is impossible to predict. While I expect that US gains will be harder to come by in the second quarter given a slowing economy and that a lot of good news has already been discounted, I would still maintain a market position in US equities, where fundamentals continue to look ok.
Russ Koesterich, CFA, is the iShares Global Chief Investment Strategist.