The esteemed S&P 500 index has not suffered a drop exceeding 2.05% for a period spanning 377 days. This represents the most prolonged period of such stability since the ordeal of the great financial crisis, drawing on FactSet figures collated by CNBC. Equally, the gauge hasn’t seen a jump of 2.15% or more during the same timeframe.
Investors have been gravitating towards heavyweight technology stocks like Nvidia, spurred by the anticipation that advancements in artificial intelligence will propel earnings. So far this year, the S&P 500 has seen an uptick exceeding 14%. Additional optimism has been fueled by the prospect of the Federal Reserve slashing interest rates in 2024, fueled by incoming data suggesting inflation is aligning more with the central bank’s target of 2%.
Adam Turnquist, the head technical strategist at LPL Financial, remarked, “Viewed from a bird’s-eye perspective, the murky skies of global economic uncertainty have cleared over the past year, with the withdrawal of inflation providing clearer insight into the likely direction of monetary policy. ” The shift in the narrative from escalating interest rates and looming recessions to sustained economic hardiness has helped propel the VIX to its lowest points in years, thus transforming the stock market’s environment from one of high volatility to one characterized by relative calm.”
The CBOE Volatility Index (VIX), commonly known as Wall Street’s barometer of trepidation, hit rock-bottom last month, reaching depths not seen since November 2020. As of Friday, it hovers around 13, which is exceptionally low by historical standards.
Joseph Cusick, senior vice president and portfolio specialist at Calamos Investments, explained, “[T]he muted VIX mirrors the options market’s sense of ease, with VIX at its lowest in three years. This aligns with the fact that large institutions have been proactively establishing protective hedges; there’s no pressing need to liquid loyalty when these safety measures are in effect.”
The duration of this era of diminished volatility remains uncertain.
Back in 2017, the S&P 500 saw fewer than a dozen days where shifts exceeded 1%, and the VIX dropped to record depths below 9. The calm was disrupted the next year as market turbulence returned, sending the VIX upwards past 50 before it moderated.
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