Whipsawed or FOMO?
Interesting couple of weeks here. Last week’s volatility spike did not last, as the VIX index, the market’s fear gauge, has resumed its downward trend this quarter. After climbing back up to 39 last Thursday, the VIX has fallen precipitously back below 29 at the time of this writing.
Given the macroeconomic backdrop, I suppose it’s no surprise that volatility should be all over the map. Last week, there was rising fear that reopening the economy might trigger another surge in COVID-19 cases. This week, the sheer dynamic change in the economy with the prospect of millions of people soon leaving their homes and going back to work has buoyed animal spirits. With the Fed waiting in the wings looking for problems in the financial system, this set up feels more bullish than bearish, at least for today. Still, it’s harder to be constructive today than it was three months ago (ironically enough). This just feels more like a traditional “climb the wall of worry” bull market.
The market continues to reward capital-light businesses and those with cash. Tech’s outperformance is astonishing. Yes, tech is benefiting from having resiliency amid the lockdown, but the market seems to be taking this view a step further. To the extent the lockdown ushers in more permanent behavioral changes, perhaps this make sense, but the gap between value and growth is historical by all kinds of metrics.
Yes, the market is supposed to be a discounting machine. Yes, volatility was at nosebleed levels. On the other hand, there could be a little FOMO to this rally. As we head into the summer and second quarter earnings reports come closer, we will get a much better feel just how sustainable this rally is.
Any opinions are those of Burke Koonce and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Burke Koonce is a financial advisor at Raymond James & Associates, Inc., member New York Stock Exchange, member SIPC.