U.S. equity indexes ended the week with a spike in volatility. The VIX index increased almost 17% on the day after investors starting to realize that tariffs wil affect economic growth and may not solve the budget deficit problem, and inflation is making a serious comeback. If that wasn’t enough, there were reports of a new coronavirus outbreak in China. Underneath all that, as markets become frothy, they become more fearful, and that sparks volatility. If you look at the table below, 19 out 20 measures tell us the S&P500 is expensive, and has been expensive for a while, but it would appear that it has found enough support to overcome fear in the amount of liquidity in the system. We may now be entering in a period where liquidity is in retreat, as the Fed cannot justify cutting rates and the new government plans to apply a much needed austerity. We may have some turbulence ahead.
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