Ben Carlson, Columnist

Stop Waiting for the 'All Clear' From Markets

Investors have good reasons to be complacent, but that doesn’t necessarily mean everyone is.

June 8, 2017 at 9:00 AM UTC

Ben Carlson is director of institutional asset management at Ritholtz Wealth Management. He is the author of "Organizational Alpha: How to Add Value in Institutional Asset Management."

The S&P 500 hasn’t had a 5 percent pullback since July 2016.

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The finance industry is full of people who are paid to worry about risks in the markets. And there is never a shortage of things to worry about -- geopolitical risk, corporate earnings, valuations, interest rate changes, inflation, monetary policy, ETFs, bond market liquidity, to name just a few. The latest risk everyone seems to be worried about is a lack of risk, or rather volatility has been so low for so long that investors have become complacent.

Markets are tricky since even a lack of risk can be worrisome because investors could become subdued into thinking low volatility is here to stay and then overreact when it inevitably returns. For example, the S&P 500 hasn’t had a 5 percent pullback since July 2016. That's the longest such streak without a minor market correction since 1996. The VIX, which is a supposed to be a measure of implied or expected volatility, is at or near its lowest levels in history.