# Low market volatility: should investors be concerned? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2017-07-22 Category: INVESTING Category URL: https://financedigest.com/category/investing Meta Title: Is Low Stock Market Volatility a Sign of Investor Complacency? Meta Description: Is low stock market volatility a sign of investor complacency or confidence? Explore the implications in this insightful analysis by Tom Elliott of deVere URL: https://financedigest.com/low-market-volatility-should-investors-be-concernedhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/dsc-1813-353-1736843666442-compressed.jpg) **Tom Elliott**, deVere Group Stock market volatility has been low on most major stock markets this year. Furthermore, expectations of future volatility as measured through futures-based derivative contracts, are also low. But does this indicate investor complacency, as many argue? If so, investors should perhaps sell and realise the 12.6% gain in USD [terms made on global stock markets](https://www.financedigest.com/the-benefits-of-investing-in-emerging-market-stocks-for-long-term-growth.html "The Benefits of Investing in Emerging Market Stocks for Long-Term Growth") this year\*. Or is it a sign of investor confidence? The degree to which [investors are expecting](https://www.financedigest.com/analysis-china-property-financing-tweaks-fall-short-of-investor-expectations.html "Analysis-China property financing tweaks fall short of investor expectations") low volatility to persist is striking. The Nikkei Stock Average Volatility Index (Nikkei 225 VI), created in 2012 to help [investors trade](https://www.financedigest.com/how-to-begin-investor-trading-in-australia.html "How to begin investor trading in Australia") volatility on the Nikkei 225, currently stands at a record low of 2,297 (as of 18th July). In Europe and the U.S similar [low volatility is being blamed by market professionals for low trading](https://www.financedigest.com/oil-prices-ease-to-trade-near-2-month-lows-on-china-demand-fears-dollar-strength.html "Oil prices ease to trade near 2-month lows on China demand fears, dollar strength") volumes. The VIX index tracks [expectations of future](https://www.financedigest.com/the-cardiovascular-information-systems-market-is-expected-to-grow-on-a-persistent-note-in-the-future.html "The Cardiovascular Information Systems Market is expected to grow on a persistent note in the future") volatility on the S+P 500 index, as implied by derivative contracts. On 14th July, it reached a new multi-decade low of 9.52. The complacency argument [says that low volatility breeds investor](https://www.financedigest.com/exclusive-new-investor-backs-bt-says-fibre-jv-may-not-be-needed-source.html "Exclusive-New investor backs BT, says fibre JV may not be needed – source") complacency, and the more complacent we become the bigger the risks that we are prepared to take. Excess risk-taking then contributes to bigger [market falls](https://www.financedigest.com/the-fall-detection-system-market-to-simulate-on-a-stupendous-note.html "The Fall Detection System Market To Simulate On A Stupendous Note") when panic sets in. This argument applies to the economic cycle also. According to U.S economist Hyman Minsky, periods of stability in capitalism bread their own destruction through encouraging complacency. Banks over-lend to the wrong sort of customer, and investors put too much of their [money into over-risky investments](https://www.financedigest.com/8-best-passive-investing-ideas-which-can-help-you-make-money-in-2022.html "8 Best Passive Investing Ideas Which Can Help You Make Money In 2022") But what do we do with such an insight? Is buying a risk asset – say, the newly issued 100 year Argentinean [bond yielding 7.9% – an indication of complacency, or based in hard-nosed logic if we belief that Treasury bond yields](https://www.financedigest.com/traders-ramp-up-bets-on-75-basis-point-ecb-sept-hike-bond-yields-jump.html "Traders ramp up bets on 75 basis-point ECB Sept hike, bond yields jump") are likely to remain low by historic standards for a considerable period time? And isn’t warning of complacency to somewhat ignore the run of positive news flow we have seen since January, that has supported investor confidence? President Trump did not impose a 40% import duty on Chinese goods upon taking office, and has not -so far- torn up any trade agreements. He _has_, though, taken the U.S out of TPP negotiations and picked squabbles with trading partners such as Mexico, Canada, and Germany, but the [global trading environment remains](https://www.financedigest.com/global-emi-shielding-market-significantly-hit-by-lack-of-consumer-demand-scenario-post-covid-19-crisis-likely-to-remain-gloom.html "Global EMI Shielding Market Significantly Hit By Lack Of Consumer Demand; Scenario Post Covid-19 Crisis Likely To Remain Gloom") broadly intact. European voters rejected populism in the Dutch and [French elections](https://www.financedigest.com/poverty-education-levels-draw-battle-lines-in-french-election.html "Poverty, education levels draw battle lines in French election"). In the U.K, [Prime Minister](https://www.financedigest.com/liz-truss-resigns-after-six-weeks-as-uk-prime-minister.html "Liz Truss resigns after six weeks as UK prime minister") Theresa May’s failure to secure her Conservative party an overall majority in the House of Commons was interpreted by many political commentators as an opportunity for a ‘soft Brexit’ to emerge from E.U negotiations, and so be less damaging to the economy than an abrupt ‘hard Brexit’. The Chinese economy has not imploded under the weight of debt that it carries, or as a result of government policies to reduce borrowing. Second [quarter GDP growth](https://www.financedigest.com/spain-q2-quarterly-gdp-growth-revised-to-1-5-from-1-1.html "Spain Q2 quarterly GDP growth revised to 1.5% from 1.1%") came in at 6.9%, above expectations. While the [Fed has raised interest rates twice this year](https://www.financedigest.com/u-s-dollar-rallies-to-more-than-2-year-hike-on-steep-fed-rate-hike-outlook.html "U.S. dollar rallies to more than 2-year hike on steep Fed rate hike outlook"), in line with predictions in January, yields on the U.S Treasury market and other [global bond](https://www.financedigest.com/global-share-markets-rise-bonds-fall-on-u-s-jobs-data.html "Global share markets rise, bonds fall on U.S. jobs data") markets have risen by only modest amounts as inflation remains much weaker than would normally be justified by the low unemployment rate. Indeed, the much-anticipated bond [bear market](https://www.financedigest.com/aerospace-bearings-market-to-register-stellar-compound-annual-growth-rate-through-2026.html "Aerospace Bearings Market to Register Stellar Compound Annual Growth Rate Through 2026") appears to have been postponed indefinitely. Janet Yellen of the [Fed](https://www.financedigest.com/dollar-slips-before-expected-fed-rate-hike.html "Dollar slips before expected Fed rate hike") recently speculated that the new ‘normal’ long term rate of interest may be just a percentage point higher than the current target rate of 1% – 1.25%. Finally, global [economic growth](https://www.financedigest.com/german-economic-growth-to-remain-muted-in-near-term-imf.html "German economic growth to remain muted in near term – IMF") has been stronger than expected, helping to boost corporate earnings and to justify current stock market valuations. In summary, it is too glib to accuse investors of complacency. [Stock markets](https://www.financedigest.com/yes-winning-the-euros-really-can-help-your-stock-market.html "Yes, winning the Euros really can help your stock market") have had a relatively strong year, so far, because news flow has been better than expected. Steady gains, with no major sell-offs, result in low volatility. To be afraid simply because the [market expects](https://www.financedigest.com/global-hid-ballast-market-expected-to-decline-with-a-cagr-of-9-8-in-the-coming-decade.html "Global HID Ballast Market Expected to Decline with a CAGR of -9.8% in the Coming Decade") such conditions to persist, is perverse. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---