Not being invested in a low volatility market “can be costly,” Goldman Sachs reportedly has warned.
Many strategists worry the low levels of volatility reflect market complacency, but Goldman Sachs equity strategist Christian Mueller-Glissmann explained to CNBC that the low volatility isn't so worrisome right now.
In fact, it gives longer-term investors all the more reason to buy stocks.
However, "being underinvested during such periods can be costly," Mueller-Glissmann said in a report. He noted that periods of low volatility tend to see above-average returns for risky assets like stocks.
"For example, cumulative price returns since 2009 are 172 percent for the S&P 500, compared with just 26 percent if the 10 highest return days each year were missed," he said. "You have to be in it to win it."
The S&P 500 has closed at least 1 percent higher or lower only four times this year, CNBC.com reported.
Financial market volatility has slumped to historic lows despite a world full of political and policy uncertainty, a phenomenon investors expect will remain until the business cycle turns and economic growth falters, Reuters reported.
Such ultra-low volatility worries investors because the last times it was so low -- in 1993-94 and 2006-07 -- major market dislocations soon followed, respectively, the U.S. bond market rout of 1994 and the global financial crisis of 2008.
This time, volatility has been crushed despite the proliferation of political risks from the global rise of nativism and protectionism, Brexit, and the election of U.S. President Donald Trump, all of which were meant to undermine market stability.
But they haven't. Record low interest rates and central bank stimulus around the world have suppressed returns, pushing usually cautious investors like pension and mutual funds to hold more equities than they normally would.
© 2024 Newsmax Finance. All rights reserved.