• Investors have enjoyed an unusual period in recent years in which both major domestic equity and fixed income markets have generated competitive returns while volatility has been low. For example, U.S. equity indexes touched record highs once again this week while credit spreads across both investment grade and high yield bond markets have slowly declined since February 2016.1,2  
  • The Chicago Board Options Exchange (CBOE) Volatility Index, or VIX Index, which measures expected equity volatility, reached its lowest point in more than 35 years this week.3 As the Index’s 50-day moving average highlights, equity market volatility has been on the decline since approximately March 2016.3
  • Volatility within the fixed income markets has also trended lower, and has recently done so more steeply than the equity market. The Merrill Lynch Option Volatility Estimate (MOVE) Index is a yield-curve weighted average of expected volatility within the bond markets. It has been moving lower since April 2015, but has slid sharply this year.3
  • While many investors and financial advisors have become accustomed to generating positive returns through relatively placid market environments, history has shown that volatility can spike quickly and for a variety of reasons.
  • It is within environments like today’s that investors may consider preparing for potential changes. When volatility rises, it may be beneficial for investors if the assets within their portfolios display low correlations to the broader market and behave differently from each other.  

1 Federal Reserve Bank of St. Louis, http://bit.ly/2d3pN5b.
2 Bank of America Merrill Lynch U.S. Corporate Master Index; Bank of America Merrill Lynch U.S. High Yield Master II Index.
3 Bloomberg.


The Alternative Thinking Week in Review market commentary and any accompanying data (“Market Commentary”) is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The Market Commentary is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such Market Commentary. The Market Commentary should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the Market Commentary or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.