Over Half of Investors Believe Low Market Volatility Is Unsustainable

This week’s Sentiment Survey special question asked AAII members to share their thoughts about the S&P 500 index’s low volatility. (The index had gone 71 days without experiencing a daily move of greater than 1% prior to Monday’s 1.6% drop.) Nearly 54% of respondents state that the low volatility is both unusual and unsustainable. Many within this group expect a correction in the near future. Conversely, 30% of all respondents think that the low volatility reflects low interest rates and a strong market. Many of these respondents believe that while there may be upticks following global news, the overall volatility levels will remain fairly low. Approximately 16% of respondents state that the low volatility trend has benefited their holdings but are unsure of how it will change in the future.

Here is a sampling of the responses:

• “Likely to end within the next year. Might increase significantly in the short-term due to the coronavirus spreading rapidly.”
• “It’s a good thing and indicates that institutional and private investors alike are showing restraint to the media frenzy.”
• “I think volatility is about to increase, and there may be temporary corrections. The economy is still strong overall, although corporate earnings will likely be lower than in 2019.”
• “It’s curious but not meaningful. Investors wish for cause & effect, but often strange things just happen.”

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