Comments from Russ Koesterich, CFA, Chief Investment Strategist for BlackRock
Says there are at least two signs pointing to higher volatility ahead for stocks:
Slowing global growth
- Estimates for 2015 growth by the G8 countries have fallen from more than 2 percent last fall to 1.7 percent today
Less benign credit conditions
- Bond yields are once again falling ... Investors are reacting to signs of slowing global growth, plunging commodity prices and more modest inflation expectations
- Other key trend in the bond markets is widening credit spreads, or the difference between the yields of U.S. Treasuries and credit instruments of comparable maturity
- U.S high yield spreads have expanded by roughly 150 basis points over the past year, from around 360 last August to about 510 today
On stock market volatility:
- Last week the VIX Index, ... traded back down to 12, roughly 40 percent below its long-term average
- This implies equity investors may be too complacent
- Should volatility rise and equities correct, one area of the market is particularly at risk: the popular "momentum" trade (in other words, stocks or sectors exhibiting strong price gains recently). If volatility heats up, so-called momentums stocks, which have rallied strongly this year, could falter.