January started off on a nice footing at the traditional 60/40 portfolio returned 4.94% (as represented by a blend of 60% S&P 500 Index and 40% Bloomberg US Aggregate Bond Index):
One pattern worth noting is that the large rally in stock prices appears to have reset volatility a bit in January, with the VIX falling to its lowest levels since October of 2021, and the volatility of volatility rising off its historically low levels. Much of 2022 saw volatility stuck in a range, with a stubborn floor set by the Ukrainian war, energy prices, and specter of inflation set a bit of a stubborn floor around 20, while the telegraphed movements of the Fed and known dates and times of rate increases set a bit of a ceiling on volatility prices.
The first read on 2023 is less certainty in the uncertainty represented by volatility. A cheaper VIX means a better potential opportunity to buy cheap protection, while also opening the door for larger spikes off those lower levels.
It appears that we are in a regime signaling decreasing volatility and increasing market prices.
We shall see how markets respond to economic reports, macroeconomic winds, and Fed policy.
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