Volatility dropped as investors reacted to some positive Coronavirus news, the stimulus package, and the USNS Comfort arriving in New York under the watchful eye of the Statue of Liberty.
The Chicago Board Options Exchange’s VIX is known as the fear gauge, and when it is high, investors are scared. It dropped 29% this week, and it’s down 43% from the high. It closed at 46.80 on Friday – still high, but an encouraging sign it’s falling. By comparison, the VIX closed at 13.68 on Valentine’s Day. What does the VIX measure? It measures volatility. A VIX level of 46.80 means the market should move up or down by 2.9% on any given day. When the VIX was at 82.69 three weeks ago, the volatility range was 5.1%. A falling VIX is positive, and the lower it goes, the better. The 30-year average is 19.32, so the daily volatility of the market is 1.2%. To calculate the daily volatility, divide the VIX by 16. Why 16? It’s the square root of 256, and there are about 256 trading days in a year.
Value Line is an investment research firm founded in 1931. They give a 3 to 5-year projection every week, depending on the valuations of the stocks in their database. The current 3 to 5-year forecast calls for stocks to rise 105%. On March 9, 2009, the previous market low, the indicator was 185%.
I continue to monitor your financial plans, and, so far, the market correction is not having any impact on your goals. Our planning software incorporates down markets, up markets, and flat markets, so the recent drop is part of the plan. It also includes inflation, deflation, taxes, and other factors that will impact your financial future. If you have yet to complete your financial plan, please give us a call to start the process. Financial planning is not an exact science, and in the words of John Maynard Keynes, “It is better to be roughly right than precisely wrong.”
Here’s how stocks, bonds, and other asset classes performed this past week.
- The S&P 500 fell 2.04%
- The NASDAQ fell .084%
- International Stocks fell 3.59%
- Emerging Markets fell .61%
- Long-Term Bonds rose .68%
- Gold rose .03%
- Oil rose 32.13% – The largest percentage move in history!
- Chinese Stocks rose .64%
The Paycheck Protection Program is up and running as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. If you operate a business or non-profit, you should apply.
Last September, the men’s group at my church hosted a former Navy SEAL for dinner. He talked about his service to our country and what it was like to be part of an elite group. It was captivating. When he discussed surviving Hell Week and BUD/S Training, his primary goal was to make it to the next event, whatever it was. For example, if he was on a morning run, his goal was to finish and make it to lunch. After lunch, his goal was to get to dinner, and so on. He concentrated on what he could control. He said individuals who failed fixated on the entire length of training, and they were overwhelmed by how long it would be to finish. His advice applies to the virus. No one knows when it will end, so focus on what you can control and take it one day at a time, look for daily victories.
The only easy day was yesterday. ~ Popular Navy SEALs saying.
Have a great weekend, and keep the faith!
April 4, 2020
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.