Connect with us


The stock market is experiencing its longest period without a 2% sell-off since the financial crisis.



Wall Street has been experiencing record highs with remarkably little volatility. The S&P 500 has gone 377 days without a 2.05% sell-off, the longest stretch since the great financial crisis. This market calm can be attributed to investors flocking to megacap tech stocks like Nvidia, on the belief that artificial intelligence will drive profits. The S&P 500 is up more than 14% year to date, boosted by expectations of Federal Reserve rate cuts and inflation moving closer to the central bank’s 2% target.

Adam Turnquist, chief technical strategist at LPL Financial, notes that macro uncertainty has cleared up over the past year, with receding inflation providing clarity on future monetary policy. The narrative has shifted from rate hikes to rate cuts and recessions to economic resilience, leading to a shift in the stock market backdrop from high volatility to low volatility. The CBOE Volatility Index (VIX), commonly known as the fear gauge on Wall Street, hit its lowest level in years last month, reflecting market complacency as institutions actively hedge against potential risks.

Joseph Cusick, senior vice president and portfolio specialist at Calamos Investments, explains that the low VIX levels make sense given the insurance products that institutions have in place to protect against downside risks. While the current period of low volatility has been ongoing for some time, it is uncertain how long it will last. In 2017, the S&P 500 had only eight daily moves of more than 1%, with the VIX dropping to historic lows below 9. However, volatility returned in the following year, with the VIX surging above 50 before eventually calming down.

Overall, the current market environment is characterized by record highs in the S&P 500 and minimal volatility, as investors continue to have confidence in megacap tech stocks and the potential for artificial intelligence to drive profits. With the Federal Reserve expected to cut rates and inflation moving closer to its target, the market has seen a shift from high volatility to low volatility. The VIX, which serves as an indicator of market fear, has reached historically low levels, reflecting a sense of complacency among investors who are actively hedging against potential risks. While the extent of this low-volatility period remains uncertain, market history suggests that volatility can return abruptly, underscoring the importance of being prepared for sudden shifts in market conditions.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *