Although the global epidemic is still raging, Fed policy makers are about to cut stimulus packages, energy prices are soaring and bonds are selling, the panic index of US stocks is still close to an 18-month low.
The CBOE volatility Index (VIX), which measures expected volatility in the S & P, has been declining over the past month, falling to 15.7 on Tuesday, close to its lowest level since February last year. According to data compiled by relevant institutions in 1990, the index is now well below the historical average of about 19.5.
In addition, there is a divergence between the stock market and the bond market, as can be seen from the ratio of the VIX index to the MOVE index, which measures the volatility of US Treasuries. This week, the ratio soared to its highest level since February 2020.
In response, Chris Murphy, a derivatives strategist at Susquehanna International Group, said there may be four reasons why the VIX index is so depressed:
(1) so far, the quarterly results released by American companies are still positive, and the earnings season tends to reduce correlation and overall volatility.
(2) investors may become more and more relieved by the Fed's "inevitable" curtailment of bond purchases and begin to pay attention to the historical trend that the stock market has performed well in the early stages of the interest rate hike cycle.
(3) due to the lack of attractive alternatives and the high level of cash, investors may expect to increase the allocation of stocks.
(4) the S & P 500 has been below its 50-day moving average for most of the past two weeks, the longest since the index rebounded from COVID-19 's low.
In addition, Murphy noted: "low levels of implied volatility and positive price momentum could open the door for commodity trading advisers and funds targeting volatility to buy more stocks."
It is understood that since the outbreak in late February 2020, the VIX index has jumped continuously, and the average level in the following 12 months is about 30, reflecting the uncertainty brought by the epidemic. But since then, vaccine development and signs of economic reopening have reduced it, and the average has remained around 19 since March. Separately, VVIX, a measure of implied volatility in VIX options, closed on Tuesday at its lowest level since April.