Volatility Is Coming…HODL

Stocks rallied to record highs, with the Dow Jones Industrial Average topping 28,000 for the first time, Friday after White House officials said the U.S. and China are getting closer to a phase one trade deal.  On Monday, the DOW and S&P 500 set another record.  This marked 20+ record highs for 2019.  

Many pundits on Wall Street think things are just getting started as the last two months have been great to investors from a historical standpoint, thanks to the so called “Santa Claus” rally.

The Santa Claus Rally refers to the tendency for the stock market to rally over the last weeks of December into the New Year…the halo effect of Christmas perhaps. However, the Wealthy have a different perspective.  They aren’t Wealthy for nothing…as they tend to think about how much they can lose, not how much they can make.

Bullish buyers have sent the S&P 500 Index soaring to a series of record highs this month, but wealthy investors are bracing for a significant market decline by the end of 2020, and now hold, on average, 25% of their assets in cash, according to a worldwide survey by UBS Global Wealth Management that drew more than 3,400 responses.

Other key findings of the survey were: nearly 80% expect volatility to increase, 55% anticipate a significant stock market selloff before the end of 2020, and 62% look to increase their diversification across asset classes. While the average allocation to cash among respondents was 25%, this was down from 32% in an earlier iteration of the survey in May. Also, per a report in Barron’s about the survey, 52% are uncertain whether it is a good time to invest now, but 64% are thinking about increasing their holdings of high quality stocks.


And their concerns are being supported by the VIX. The CBOE Volatility Index, VIX aka the stock market fear gauge, is a popular measure of the stock market’s expectation of volatility implied.

Devesh Shah, an applied mathematician and hedge fund manager who formerly worked for Goldman Sachs, was one of the creators of the CBOE Volatility Index

The VIX is quoted in percentage points and is the expected annualized change in the S&P 500 index over the following 30 days, with a 68% probability. VIX values greater than 30 represent investor fear or uncertainty, while values below 20 represent complacent in the Markets.


The current VIX level, near 12, is near the lowest historical levels of the past 12 months, which means it’s setting up for a pop higher, which will correlate to a drop in the equity makes.    In addition, the Smart Money added to their bearish bets on the VIX futures for a fifth straight week and for the tenth time in the past eleven weeks. The green line represents the Smart Money and the fact that the open positions are increasing is evidence that they have been adding to their short position. All I can say is HODL because the ride will get bumpy at some point.

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This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.