With the Dow Down in 2014, Where's the Fear?

Even with the Dow failing to start the new year on a positive note, volatility levels are still extremely low.

Jan 14, 2014 at 12:31PM

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Even with today's rise of 86 points for the Dow Jones Industrials (DJINDICES:^DJI) as of 12:30 p.m. EST, the well-known market benchmark is still down in early 2014. Yet even as calls for a possible correction get louder, one important gauge of fear in the market remains at historically low levels, suggesting continued complacency among most investors.

The S&P Volatility Index (VOLATILITYINDICES:^VIX) ordinarily perks up when the market shows signs of falling. But so far in 2014, the so-called Fear Index has fallen another 12% as of midday today, remaining at levels that rival its lowest readings in seven years. That has led to further losses in the iPath S&P 500 VIX ST Futures ETN (NYSEMKT:VXX), which is down 4% to date this year, while the inverse ETN has risen by a similar amount.

Anecdotally, it seems volatility has picked up in certain pockets of the market. Perhaps the most obvious lately has been the biotechnology and pharmaceutical area, where huge moves for development-stage companies have become the norm. Intercept Pharmaceuticals (NASDAQ:ICPT) became the poster child for volatility in the past week, with the stock soaring from $72 to $446 per share last Thursday and Friday before giving back $200 per share in the past couple of days.

Earnings-related announcements have also led to substantial volatility, especially to the downside. Just yesterday, both lululemon athletica (NASDAQ:LULU) and SodaStream suffered respective drops of 15% to 25% after giving disappointing early reads on their holiday seasons. Such preannouncements aren't all that unusual, especially with high-growth stocks whose share prices build in high expectations of future results. Yet the magnitude of downward share-price movements in response to these news events seems to be heightened, perhaps because of the outsized gains the market posted in 2013 and previous years.

Still, for now, investors appear unconvinced that the modest pullback that stocks have seen so far this year will amount to anything more than the minor dips that have occasionally punctuated the bull-market run of the past five years. Unfortunately, it seems increasingly unlikely that the Fear Index will give an early warning sign when a more severe correction comes.

Should you be scared to invest?
Even with a correction potentially coming, it still pays to stay in the market in some capacity. Why? Find out in our brand-new special report, "Your Essential Guide to Start Investing Today," in which The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Lululemon Athletica and SodaStream. The Motley Fool owns shares of SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers