There’s the daily up and down of the indices, and then there is the VIX. Which is more important to gauging market sentiment?
- U.S. jobless claims hit a five-month low as labor market strengthens.
- The ECB lowered the benchmark interest rate to zero, while cutting its deposit facility rate to minus 0.4%. The central bank also expanded its monthly asset purchases to 80 billion euros, beginning next month.
Good news, right? Yet the major indices earlier today ran to the red on the news. My money is on the VIX (between 15 and 20), as the major indices reflect the unreliability of this traders’ market. The money, the real money, the money that solidly moves the market is on the sidelines, again.
- Investors took out almost $140 billion from equity mutual and exchange-traded funds in the last 12 months, more than double the peak outflows experienced over any comparable periods during the global financial crisis.
Sounds scary, yes? Recitation of big numbers has that effect, but don’t you worry your smarty big brain about a thing. Big numbers can also make you smile.
- In the 12 instances when funds experienced monthly outflows that were at least 2 standard deviations from the historic mean, the S&P 500 rose an average 7.1 percent six months later, compared with a normal return of 3.9 percent.
The above big numbers mean something – investors are waiting out the traders. Keep your eye on the VIX (16 or lower) to know when good news will bring them back. Buy the dips.
