Stock markets are as calm as they’ve been in five decades, despite uncertainty over the direction of federal tax and health care reform and infrastructure spending. But that doesn’t mean investors have to fear treading in even as major indexes — and high profile stocks — hit records.
Goldman Sachs’ chief U.S. equity strategist, David Kostin, has updated the bank’s list of stocks that can maximize returns in a low-volatility market, removing tech giants Facebook and Alphabet and adding stocks including Autozone, Discover Financial Services, Dollar Tree, HP Inc. and Intel.
A widely watched number called the VIX, which is an options-based measure of how much it would cost to protect a stock portfolio from a market decline in the near future, remains near record lows. The S&P 500 volatility in the last six months ranked in the first percentile going back as far as 1966, according to Friday’s research note. And the numbers looking ahead one month to five years suggest that the VIX will stay below its historical average, the bank said.
Investors have embraced funds that aim to minimize volatility in the last few years, but Goldman asks if that is the right goal in a low volatility market. “Fund managers should seek to maximize prospective risk-adjusted returns rather than minimize realized volatility,” the note said.