If there’s one thing nearly all market players seem to agree on, it’s that the era of super-low volatility is over.
But that shouldn’t cause concern, according to Credit Suisse and other major banks, who are promoting it as an opportunity to buy.
“Obviously, we’ve seen the VIX (Wall Street’s ‘fear index’) at incredibly low levels, but these spikes in the VIX, historically, if you look at them, are buying opportunities,” David Sneddon, global head of technical analysis, told CNBC on Tuesday.
“When you see these big spikes, these are opportunities to buy the market, not to get more worried. And I think at the moment, that’s very much proving to be the same again.”
Volatility returned with a vengeance in early February, as rising bond yields and fears over inflation triggered a market sell-off and the VIX shot up a record 118 percent, jumping from a low level of 17 to 37, and briefly hitting 50 the following day. Forced selling of short-volatility products also exacerbated the market turmoil. One week later, the Dow Jones and S&P 500 have rebounded somewhat, but are still more than 7.5 percent below their January peaks.
Credit Suisse is among many banks that say this actually presents a positive outlook for equities. In a client report published last week, the Swiss lender unveiled numbers suggesting that investing after a volatility spike is a good call.
“History shows that investing following spikes in volatility tends to lead to above average returns for the S&P 500 in subsequent months,” the report said.
Charts revealed that between 2010 and now, on average, when the VIX jumped to higher than 20, the following three months saw returns on the S&P 500 of 6.4 percent. In the same time period following a spike to higher than 25, returns were at 6.9 percent.
