From the Brexit, to the Federal Reserve (Fed), European banks dropping, and slowing jobs growth, the list of concerns continues to grow. As we noted yesterday, the CBOE Volatility Index (VIX) has seen a huge surge over the past few days, as many investors are preparing for potential volatility. Fear is in the air, so we opened it up to our Research department and asked what the biggest fears were right now.

• Brexit
• Terrorism
• Eventually needing to reverse central bank actions from the past seven years
• Treasuries becoming a crowded trade
• An unusual election
• College costs
• European banks continue to drop with unknown long-term effects
• Utilities price-to-earnings ratio (PE) trading at a premium to the S&P 500
• Difficult period for active management continues
• The market (stocks, bonds, commodities) is underpricing the risk of rising inflation
• The long-term effect of negative interest rates

In conclusion, there are many growing global concerns out there. At the same time, don’t forget that the market is a discounting mechanism and many of these concerns could be priced in already.

 

IMPORTANT DISCLOSURES

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio.

The VIX is a measure of the volatility implied in the prices of options contracts for the S&P 500. It is a market-based estimate of future volatility. When sentiment reaches one extreme or the other, the market typically reverses course. While this is not necessarily predictive it does measure the current degree of fear present in the stock market.

This research material has been prepared by LPL Financial LLC.

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