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Where to Hide as Wall Street’s Fear Gauge Flashes Red

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Dec. 21 2018, Updated 1:38 p.m. ET

Volatility makes a comeback

Volatility (VXX) has made a comeback in the markets this year after a prolonged calm. Last year was particularly calm as volatility plunged to a multi-decade low, but October’s elevated volatility sent equity markets into a tailspin. US–China (FXI) trade tensions, slowing global economic growth, the Fed’s latest rate hike and policy outlook, and the potential government shutdown have been major sources of volatility for US markets lately.

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Fear gauge remains elevated

Yesterday, the CBOE (Chicago Board Options Exchange) Volatility Index (VIX), the “fear gauge,” hit 28.38—its highest level since February. A level of 20 or above means heightened volatility. The Dow Jones Industrial Average Index (DIA) fell to a 14-month low yesterday while the NASDAQ Composite (QQQ) temporarily fell into a bear market. Although volatility normally returns, it has taken some investors by surprise this time. They may have become accustomed to the unusually calm conditions of 2017.

Where to hide?

In the changing market scenario, investors need to be more selective and think about companies’ long-term fundamentals. Also, as volatility increases and markets worry about prospects, gold (GLD)(NUGT) investments usually increase. Goldman Sachs is bullish on gold’s prospects as it expects market fear of a US recession to increase.

For more on gold miners’ dynamics, read Which Gold Miners Look Promising as Gold Rebounds?

Check out How to Profit from the Current Market Uncertainty for more on how to deal with the current risks in this volatile market.

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