After a supremely placid 2024, the stock market is showing a lot more fear thus far in 2025.
That’s got wealth managers poised to sooth jittery client nerves and maybe make some portfolio moves too.
The VIX, or volatility index, jumped over the 21 level Monday, pushing it over 22 percent year-to-date. Also known as the market’s “fear index,” the VIX spent the majority of the past 12 months loitering well below 20 as the market methodically churned higher, indicating a low level of investor anxiety. The VIX is constructed from the prices of out-of-the-money options written on the S&P 500.
Sean Beznicki, director of investments at VLP Financial Advisors, said he monitors the VIX as one of several key market indicators, recognizing its importance in gauging investor sentiment and potential market turbulence. And as he looks ahead to 2025, he does anticipate heightened volatility.
“The entry of a new administration with ambitious plans often introduces a degree of uncertainty into markets,” he said.
And while he does not base portfolio decisions solely on outsized movement in the VIX, he is “proactively hedging expectations by adhering to our strategic allocations” in the face of this rising uncertainty. This includes a focus on high-quality fixed-income assets, investments in fundamentally strong companies, and undervalued holdings within globally diverse markets.
Elsewhere, Matthew Liebman, CEO of Amplius Wealth, said he monitors various volatility metrics to help get a sense of market sentiment, including the VIX. Nevertheless, he stresses that he does not trade the VIX, or VIX related vehicles, even though he does expect volatility to rise to more traditional levels in 2025.
“Between elevated US equity valuations, an evolving yield curve, and a new administration taking over in Washington, we expect volatility to increase from its lower 2024 levels,” Liebman said. “We have a long-term perspective and believe that we are in the early phases of a bull market in diversification. We will attempt to use volatility in various assets classes to acquire appealing long-term investments at attractive prices.”
Tom Graff, chief investment officer at Facet, meanwhile, “definitely looks at the VIX as a market indicator,” but won’t hazard a guess as to whether it will rise substantially in 2025. That said, he is preparing for more volatility after a placid year in the market.
“I think if we were to see a big move higher in the VIX in 2025, it would coincide with either recession risk or substantial earnings misses, especially from tech,” Graff said. “We have recently reduced our tech exposure in favor of more inexpensive mid-cap stocks. I don't see this as a bet on higher volatility per se, but if there were to be a big move in the VIX, I think tech is very likely to be at the center of it.”
Christian Bryant, president and chief investment officer at Nold Bryant Planning and Investments, watches the VIX alongside Treasury yields, gold, the US dollar, and credit spreads “to try to understand what it is telling us and how it should affect allocation decisions.” In his view, using the VIX alone can cause panic selling, and spikes in the VIX are often short-lived.
He too is expecting volatility ahead, primarily due to a widening of potential Fed moves due to renewed inflation fears, as well as White House policy uncertainty.
“Our allocation decisions this year will be less focused on how to avoid volatility and more focused on where the places in the market are that we can be strongly convinced to hold through the volatility,” Bryant said. “We believe the key to avoiding panic selling is knowing what you own and why you own it, and we have found that clients avoid the crucial mistake of panic selling during volatility when they understand the research we’ve done and the conviction we have behind the outlook for the asset classes we own on the other side of the volatility.”
Finally, Charles Failla, CEO of Sovereign Financial Group, keeps a close eye on the VIX and does expect volatility to increase in 2025. He plans to leverage that increased volatility by taking advantage of option hedging strategies like cash-secured puts to help reduce his clients’ overall risk profile.
“What's interesting is that a higher VIX will often help create better hedges since a higher VIX drives the cost of options higher. So, if you're doing a strategy like a short-put then you benefit from higher option prices. We think of it as volatility's silver lining,” said Failla.
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