The S&P 500 volatility index shows the market’s expectation of volatility over the proceeding 30 days. Since volatility is attributed to declining markets, a rising VIX usually coincides with market sell-offs, and vice versa.
Friday the VIX fell to 9.37, which took out the low of 9.39 that occurred on December 15, 2006. I want to stress that this is simply an observation and not a market prediction. The VIX can stay low for a long time, and even a rising VIX is not always a precursor to a bear market.
The observation: are we becoming too complacent to the risks that equity investing represent? The fundamentals continue to improve and confirm a recovery in its middle to late stages. But on the flip-side, the expansion is now over eight years long, and global central banks will soon be moving to tighten unprecedentedly easy monetary policy conditions at the same time.
Chances are your not going to be able to time the next major correction or serious bear market. So the better course of action is to take a look at your portfolio now and assess whether your taking more risk than you’d be comfortable with in a bear market. It’s better to prepare now (when stocks are at all time highs) then try to re-balance in the middle of a serious volatility event.