It's slow going in the market right now. From stocks to bonds to currencies, nothing much is happening.
And there is a growing sense that it might just be too slow, too quiet.
We've now seen a bunch of commentary using the same word to describe the current market mood: complacency.
Here is Rick Frisbie, head of Franklin Templeton Solutions (emphasis added):
"We are definitely positioning to become a little more defensive. We have a saying that 'when the CBOE Volatility Index (VIX Index) is low it’s time to go' — the VIX is often referred to as the fear index or fear gauge, and when it's at low levels, we think it could be a prudent time to move a little more out of risk assets. Currently, the VIX is trading at about 13, but the 20-year average is just above 20 or 21, so sitting at lower-than-average levels, it means many investors have become less concerned about risk and maybe a bit too complacent."
Here is Joe Amato, chief investment officer for equities at Neuberger Berman (emphasis added):
"Given that a lot could happen this fall to reveal how complacent and vulnerable markets have become — from an inflation or rates shock to another twist in the US elections or a geopolitical tire blow-out — investors should make sure their seat belts are fastened."
Here is Richard Cochinos and Ran Ren at Citigroup (emphasis added):
"A preliminary conclusion suggests markets are in a 5-10% tail — defiantly suggesting complacency is running high."
And here is Athanasios Vamvakidis, Adarsh Sinha, and Yang Chen at Bank of America Merrill Lynch (emphasis added):
"In our view, complacency combined with short vol exposure could set up the market for a highly volatile and correlated sell off on the next shock."
The recurring theme here is that there is likely to be a rocky patch ahead, as some of that complacency is wiped away. Frisbie said that "the world is filled with dislocations," and that "decoupling is likely in different interest-rate regimes and different currency regimes."
He added:
"After being fairly bullish overall in our multi-asset portfolios at Franklin Templeton Solutions, we have retrenched a bit and have taken more of a buckle-up attitude as we move into the fourth quarter, with the US elections and other events happening in the world."
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