By Jack Kelly:
On a daily, actually minute-by-minute, basis the mass media inundates us with fear and terror.
Breaking news alerts on cable television news programs warn their already nervous audience of a possible nuclear war with North Korea and the potential of World War III between the US and Russia. The news constantly showcases political pundits verbally assaulting each other claiming the other side is going to cause the ruin of our nation and the world. Shocking videos of terrorist attack violence are run on seemingly constant loops on television and appear everywhere on social media sites. We are beset by articles suggesting robots will take over our jobs, health care will be lost, and college kids are rioting at our most prestigious campuses.
It takes nerves of steel not to be rattled by the onslaught of negative news portending doom and gloom.
Interestingly, a bellwether gauge, followed by Wall Street but little known by main street, called the Volatility Index, also referred to by finance guys as the “Vix” or “Fear Index” due to its measure of worry and anxiety in the market, has fellen to its lowest level since 1993.
The drop in value of the Vix (yes, you can buy and sell the index) reflects that market participants including hedge funds, banks, traders, and brokers believe that all is well in the world. If the Vix rises, it indicates the increase in fear and that money managers are concerned the stock market is in for a fall in value.
In addition to the Vix declining, the stock market has been hitting record highs. It almost seems as if there is a parallel universe between what we watch on TV, read on social media and the reactions of so-called sophisticated investors.
I hope that the Vix is right and everything is okay. Sadly, often times the “smart money” big players on Wall Street get things completely wrong (remember a little thing called the financial crisis of 2008?).
Today, I’ll go with the future will be fine attitude. Just in case, I am going to buy the Vix index which will spike in value if things go south.
As we are getting ready to send our newsletter today, stock prices have fallen and the Dow is down 350 points. What a difference a week makes.
While the threat of nuclear war with North Korea and World War III with Russia did not spook the stock market, news reports of a secret memo written by former fired FBI Director, James Comey, alleging that President Donald Trump asked him to stop any potential investigation of former national security adviser Michael Flynn, sent stocks into a free-fall.
On the positive side, corporate earnings have been strong, and consumer confidence remains high. Even with the sell-off the Dow is up about 5%, S&P 500 gained 6%, and the Nasdaq soared 12% this year.
The market is also falling due to concerns that all the swirling drama will hamper Trump’s plans for corporate and individual tax cuts, and massive a infrastructure development program which would have boosted the economy and created more jobs. Investors had been betting, and bidding up stock share prices, that Trump would cut back on regulations against Wall Street firms which may also not materialize.
The VIX (VIX), which we discussed last week, rocketed up 30% Wednesday. In full disclosure, while I wrote that I would buy the VIX as a hedge against uncertainty, I got distracted and did not pull the trigger and buy it.