Echoes of 2017
Reminiscent of the post-election “honeymoon” in 2017, November’s placid equity markets produced low and stable VIX readings and the steepest VIX futures curve in over three years (see chart), lifting all TCM strategies and helping to propel Alpha Seeker to its best month of 2019. As another encouraging sign, the change of character that began around the “Phase 1” trade headlines in mid-October has already produced four of Alpha Seeker’s top 5 days of 2019 as well as two of its best days since 2018.
Monthly average VIX futures curve (VX2 / VX1), 2016-2019.
For the time being, it appears as if markets have broken their 2-year stalemate to the upside, looking past this year’s decline in earnings with hopes of a trade deal and an acceleration in growth that always seems to be right around the corner. At new highs after being bailed out of every dip in recent memory, one could be forgiven for thinking that “diversification” is a dirty word now that indexes have seemingly become risk-free. Of course, this mindset conveniently ignores that fact that with investing, it’s not just what you make that counts, but what you keep. Students of history know the belief that “it’s different this time” should be the real worry.