“Most valuation parameters are either the richest ever or among the highest in history,” Howard Marks, co-founder of Oaktree Capital Management, told the WSJ. “In the past, levels like these were followed by downturns. Thus a decision to invest today has to rely on the belief that ‘it’s different this time.'”
Given the heightened valuation and the recent run up in equities, investors may be betting on the historically low VIX as an indicator that volatility will accelerate ahead.
The VIX, or so-called fear index, is a widely observed indicator for investor sentiment in the stock market and measures the expected or implied volatility of large-cap stock options traded on the S&P 500 index. ETPs that track VIX futures allow investors to profit during rising volatility or hedge against short-term turns. VIX exchange traded products track the VIX futures market, not the VIX spot price.
For more information on the CBOE Volatility Index, visit our VIX category.