Calm restored. But For How Long

Calm has been restored in the markets, but for how long is an open question according to Rob Isbitts, chief investment officer of Sungarden Investment Research. “White returns can be had, pursuing them involves a historically high degree of risk,” he said in his monthly podcast with Robert Powell, editor of TheStreet’s Retirement Daily.
The CBOE S&P 500 Volatility Index or VIX, an oft-quoted measure of anticipated stock market worry, does not, however, does not tell you that, said Isbitts.
The VIX, he noted, is not a predictive tool as much as it is a snapshot of how fearful investors are right now. “The risk of major loss is still high in the stock market,” he said. “And there’s a history and a wealth of indicators about the global economy pointing in that direction. It doesn’t mean that it’s 100 percent. It just means that the odds are strong that the next major move of consequence would be down. But I don’t think the VIX is telling us that right now.”​
Isbitts also said the current stock market environment remind him of the Dot-Com Bubble era, 2000-2001. But there are also reminders of conditions that preceded the financial crisis a decade ago and reminders of the 1987 crash. “These are things that you just look at as potential warning signs, not to say ‘this is going to happen,’” he said. “You always need to be looking out at where risk could come from.”
Isbitts also said the U.S. bond market has been, from his perspective, trendless as of late. “It doesn’t mean that bond returns are going to be negative, although they certainly could be and that would be a shocker for people, but they won’t be decidedly positive… and that’s what people have gotten used to. When the stocks don’t do well, the bonds make up for it. It’s hard for bonds to make up for it when yields are so low to start with.”
The big issue for investors is what will happen if the economy dives into recession sooner rather than later, he said. “This is something to watch extremely closely during the rest of 2019.”

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