The stock market hasn’t yet factored in a potential recession for this year, according to Quincy Krosby, chief equity strategist for LPL Financial. While volatility is elevated, it hasn’t reached the heights associated with panic selling, she said.
ThinkAdvisor recently asked Krosby, via email, five questions related to market volatility. Here are her responses.
1. What’s your view on where volatility is headed in Q3 & Q4?
Volatility, as measured by the VIX (volatility index), has been in a fairly tight, but elevated range in the mid-high 20s. Still, we haven’t experienced the higher panic levels associated with major sell-offs, when the VIX climbed to 40 and above. Exogenous, unexpected shocks are typically responsible for the VIX to climb higher as traders worry about future shocks and pay higher prices for downside protection on the S&P 500.
During this period, market participants understand what the Federal Reserve is trying to accomplish to curtail inflation. Any shocks that would send the VIX dramatically higher would probably come from the unintended consequences of financial conditions tightening too much as the Fed continues to raise interest rates.
2. What are the greatest risks and opportunities for investors in this environment?
The greatest risks for investors in this environment are to think that the Fed will never be able to rein in inflation, and that supply chains will never unwind.