Over the past four weeks, stocks have staged an impressive rebound from their February lows. Stocks rose for the fourth consecutive week last week, with the major U.S. indices up around 1 percent on the week.
But this recent "relief rally" has dampened volatility to levels that are perhaps too low, BlackRock's Global Chief Investment Strategist, Russ Koesterich, warned on Tuesday.
"Against the backdrop of continued uncertainty in the global economy, the recent rally is beginning to look a bit excessive. This is particularly evident in the sharp drop in volatility. The VIX Index, a key measure of equity market volatility, has fallen to about half of its February peak. Meanwhile, the VVIX, which measures the volatility of volatility (or, more precisely, how frequently volatility spikes occur), is back to its lowest level since last August," he said.
"Given the still uneven pace of global growth and tighter financial market conditions suggests the potential for a rise in volatility — which would imply another bout of stocks selling off. March may have come in like a lamb, but the lion may be lurking," he added.