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If the market's drop turns into a correction, history says hide out in gold, bonds
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Loading...When the market falls and volatility rises, investors should hide in bonds and gold.
The liquid exchange-traded funds that outperformed during the last 10 years when the Cboe Volatility index (VIX) – the market's fear gauge – jumped five points in five days.
In such instances the iShares 20+ Year Treasury Bond ETF (TLT) has averaged a 2.1 percent gain after such a move in the VIX.
Investors may seek the safety of treasury bonds during times of stock market turmoil.
The findings also show gold outperformed in times of rising volatility. Both the iShares Gold Trust and the SPDR Gold Trust rose 0.9 percent on average after a five-point gain in the VIX in five days.
Investors may start looking for safe havens if the stock market's drop Tuesday continues into the rest of the week. The Dow Jones industrial average fell as much as 400 points in its single-worst day (as measured in points) since June 2016; on a percent basis, the Dow was having its worst day since May. The S&P 500 fell 1 percent Tuesday.
The VIX peaked at 15.42 Tuesday, adding more than 5 points in the past two weeks and reaching its highest level since August.
Source: Bloomberg Pro Terminal
Trader Bozhidar Arabadzhiev
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