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Market complacency

It appears investors are no longer climbing the wall of worry and, despite the uncertainty, and the demanding valuations, they seem to be comfortable with their equity exposure. The VIX index is at the low end of its historical minimums and as you can see in the chart below, the cost of hedging a 5% drawdown on the S&P500 with puts is at an historical low. It may be complacency from investors, but in any event, this calm usually doesn’t last long and in some instances, the rebound on hedging costs is aggressive. August is historically the worst month for stocks, followed by September, the second historical worst. We’re entering a volatile period after a powerful move in equities since October ‘22.

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