The market’s ‘fear gauge’ is hitting rock bottom. Should you be scared?

investmentnews.com:

It’s getting awfully quiet out there in the stock market. A little too quiet.

The CBOE Volatility Index (VIX), also known as Wall Street’s “fear gauge”, has been scraping along historically low levels around 12. The long-term average for the VIX is 19.6, according to Dow Jones. The VIX, which is derived from trading activity in S&P 500 options expiring within the next month, represents the expected range of movement for the S&P 500 over the coming year.

When volatility sinks to such depths and remains subdued, it is often a signal to market participants that a selloff is on the way.

So are financial advisors worried about a potential Jaws (hey, it is summer) lurking below the market’s still waters, ready to pounce on their client portfolios? And if so, are they cutting bait on this bull market, up 12 percent year-to-date?

Christopher Davis, partner at Hudson Value Partners, says the VIX currently shows a lot of complacency in the market. That said, absent a geopolitical shock beyond the level that markets seem to be numb to, he believes it might be a “quieter summer.”

“With earnings season just concluded, we see more green and yellow lights than outright red ones,” said Davis. 

Meanwhile, Brian Glenn, chief investment officer of Premier Path Wealth Partners, believes a low VIX is much less predictive than a high VIX. As a result, he reacts less to it low readings.

“Historically, a high VIX has been a wonderful time to lean into risk-on assets, particularly equities. It provides a much better tactical signal if that’s your investing or trading style,” said Glenn. “A low VIX, however, is generally the norm.”

“Since its 1990 inception, the VIX has averaged around 20,” said Glenn. “It’s been below 15 about 30% of the time