Market Perspectives - July 2017

1. Market Perspective – July 2017
Experience Insight Impact
biegelwaller.com
Overview: With half of 2017 behind us, market volatility remains unusually tranquil. This month,
we explore the perplexing lack of volatility and compare this to prior periods. While the old
adage remains true, “past performance is not an indication of future results,” there are of course
lessons to be learned. In this case, we are simply reminded that volatility, albeit temporary, and
market price swings are a normal part of the investment process.

2. Market Continues to Move Higher Without Significant Corrections
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Experience Insight Impact
According to CNBC, “since 1950, there has been a 5 percent temporary pullback in
the market in 91 percent of years from then until now.” Another way of thinking
about this is that market drawdowns are NORMAL parts of the investment process.
Recent market price action has proven highly unusual.

3. We Are In an Extended Period of Record Low Volatility
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Experience Insight Impact
VIX reflects options traders’
expectations of market volatility.
We must remind ourselves that
expectations are often far from
reality.
Volatility is a measure of magnitude
in price fluctuations. CBOE Volatility
Index (“VIX”) is an implied measure
of market’s expectation of 30-day
volatility calculated from option’s
pricing on the S&P 500 Index. Large,
frequent declines generally lead to
higher VIX levels. As evident from
the record-low levels of VIX, the
market does not expect much price
volatility. The “fear” gauge is low.

4. The History of Prolonged Low Volatility
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Experience Insight Impact
As investors in markets, we should always keep in mind that no market solely goes up and
corrections can be healthy. However, while prudent to be cautious, long winning streaks of the
S&P 500 alone does not lead us to believe that a sell-off is imminent. As shown in the chart
above, there are numerous instances in the past with longer and higher winning streaks.

5. It Is Unclear Whether VIX Levels Predict Market Returns
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Experience Insight Impact
There is insufficient evidence
and often conflicting studies
regarding market returns at
different VIX levels. While
Schaeffer’s Investment
Research reports that markets
1- and 3-month returns were
higher for very high VIX levels,
T. Rowe Price states the
opposite with 12-month
returns.

6. Not All Signs Point to “Complacency”
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Experience Insight Impact
Not all indices point to
“complacency”. For example, the
SKEW Index, which measures the
perceived tail risk of the market
via the pricing of out-of-the-
money options, is at a higher
end. A higher SKEW level implies
a higher demand for extreme
market protection.
2017 Bloomberg Finance L.P.

7. Conclusion: As noted, the current period for the markets has been highly unusual from a
volatility perspective. We anticipate that over time, markets will return to a normal state of being
with a wider range of up and temporary downtrends. As investors with a long-term focus, we
remain vigilant to avoid complacency and look forward to taking advantage of market
opportunities as they present themselves.
Experience Insight Impact
Market Perspective – July 2017
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8. Experience Insight Impact
Disclaimer
Opinions expressed in this commentary may change as conditions warrant and is for informational
purposes only. Information contained herein is not intended to be personal investment advice for
any specific person for any particular purpose. We utilize information sources that we believe to
be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee
of future performance; investing involves risk and may result in loss of capital. Consider seeking
advice from a professional before implementing any investing strategy.
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