BY: HANS ALBRECHT, CIM®, FCSI®, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS
June 9, 2017
Thus far, 2017 has been one of the least volatile years ever. Yet, we still hear questions about why markets are calm in an environment of such uncertainty. But where is this uncertainty?
At least from the market’s perspective, there isn’t much to worry about. In fact, if there is anything of concern, it seems to be missing out on potential market upside – the same worry that has plagued many investors for much of the past seven years.
There was a time when investors thought that the market had a tendency to fall faster than it could rise. That’s certainly not true this year. According to Deutsche Bank, in 2017, the market has had seven times as many 70 basis point up-moves as 70 basis point down-moves1. Panic has been to the upside.
Are we experiencing a ‘Bizarro Market’? You might recall the concept of a ‘Bizarro World’, introduced by DC Comics and later made more famous by Jerry Seinfeld: “Yeah, like Bizarro Superman, Superman's exact opposite, who lives in the backwards Bizarro World. Up is down; down is up. He says ‘hello’ when he leaves; ‘goodbye’ when he arrives.”
In a Bizzaro Market, measures of actual market movement have fallen to multi-decade lows, despite the Baker-Bloom-Davis Index of Policy Uncertainty still being very high. In the Bizarro Market, high equity valuations are actually considered low because interest rates have been close to zero. In this Bizarro Market, yields can go negative and equities have become the new ‘fixed income’ asset. Could Bizarro-Janet Yellen actually lower rates in June? That’s highly unlikely, but if she did, the Bizarro Market might not even notice – and that’s what makes me nervous. A Bizarro Market works, until it doesn’t.
1 Source: Deutsche Bank, April 28, 2017.
Source: voxeu.org and Horizons ETFs, May 28, 2017.
The views/opinions expressed herein may not necessarily be the views of AlphaPro Management Inc. and Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.