Yesterday in Enis’ preview of the week’s events, he highlighted the extremely low levels of movement in the SPX:
After last week’s busy economic data calendar, this week’s schedule is very light by comparison. However, even with the flurry of releases last week, the realized volatility in the U.S. indices was minimal. The S&P 500 index 10 day realized volatility remains very low, at around 4:
It can’t get much quieter from a volatility perspective.
Jonathan Krinsky, chief market technician at brokerage firm MKM Partners, had a fairly interesting observation in a note to clients yesterday, highlighting the low levels of volatility in the SPX:
SPX has now gone 14 consecutive day without a move greater than 0.50% on a closing basis. As we mentioned this morning, that is the longest streak since 1995, which also ended at 14. To find a streak longer than 14 in a row, we have to go all the way back to Feb. 1969, which saw 20 consecutive days without a close greater than 0.50%. That streak ended with a 1.13% down day, followed by 5 more down days. 4 of the 5 longest streaks since 1980 were broken with positive days.
In other words, if the SPX doesn’t move more than 0.50% either way tomorrow, it will be the longest streak in 45 years!
The low levels of implied vol in what is perceived to be the safest equity market in the world don’t surprise me in and of itself given the continued accommodation by the Fed and the perceived strength of the economic recovery. But the complacency of U.S. equity investors given the backdrop of volatility in almost every other risk asset in the world is a bit concerning.
For instance, the Euro vs the U.S. dollar went from a 52 week high on May 8th at about 1.40 to today’s 52 week low at 1.286, and down 2% in just the last week, massive for that currency pair:
Crude oil had a peak to recent trough selloff of 13% from the 52 week highs made in June, and in the last week, it has traded in a very wide range of $96 to $91.80:
And then bond yields, specifically the U.S. 10 year Treasury yield, started the year just below a 2 year high and just last week made a new 52 week low:
And Gold, down 10% from the 2014 highs, and down 5% in the last month:
Though U.S. equity indices have been quiet, European stocks have certainly been volatile of late, with the Euro Stoxx 50 having corrected more than 10% from the June multi year highs, and is now back up 10% approaching the prior highs:
All of this is occurring as we approach the end of QE at the October meeting. We might even see some guidance about a the timing of an interest rate increase at the Sept FOMC meeting next week.
The period after the end of QE1 and QE2 were the two times over the past 5 years when the VIX moved above the 20-22 area, which has been a sort of line of demarcation for low and high volatility environments. As we approach the end of QE3, and other asset classes are starting to show signs of more volatile price action, the low volatility regime might soon be ending for U.S. stocks as well. Just Saying.