The stock market hasn’t been this sure of itself since Bill Clinton first took office.
Or rather, the VIX, a measure designed to track stock market fear, is at its lowest in 24 years.
While alarmists may view this as a negative — a signal that complacency has made traders vulnerable to an unforeseen shock — many investors simply see it as a byproduct of conditions ideal for stocks to continue edging higher.
“At this point I’m not worried about a low VIX,” Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird in Milwaukee, told Business Insider. “One of the hallmarks of our current bull market is a tape that slowly and relentlessly grinds higher, and that just crushes volatility. There’s just so much to be bullish about — so many sectors and charts that look spectacular.”
One popular rationale for the so-called “melt up” in stocks is that middling economic growth has kept the Federal Reserve from quickly tightening monetary policy. As a result, investors haven’t fled the stock market in favour of fixed-income, and gains haven’t gotten so overheated that a corrective phase has been necessary.
Kate Moore, the chief equity strategist for BlackRock, which oversees $US5.4 trillion, told Business Insider that conditions in the US are currently in a “sweet spot.” Growth is strong enough that the Fed feels comfortable normalizing policy, but it’s not doing so in rapid fashion, she said.
In addition, the US market is currently in the middle of an expansionary period for corporate profits. The biggest driver of share gains, earnings growth for the S&P 500, is expected to be 7.3% in the second quarter, which would mark its fourth straight period of expansion, according to data compiled by Bloomberg.
That the VIX hit the lowest on record on the same day that the S&P 500 closed at a new all-time high isn’t all that surprising, considering the two gauges trade inversely to one another roughly 80% of the time. What’s interesting about it is the lack of worry.
To Richard Sichel, senior investment strategist at Philadelphia Trust, which oversees $US2 billion, that dynamic has some people feeling bearish — even if there isn’t a compelling fundamental reason.
“I come across a lot of people that are bears just because the market is high,” Sichel told Business Insider. “We don’t see it that way. We think earnings are going to be good, and there’s still a lot of hope for pro-business activity ahead.”
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