Are Record Index Highs Leading to Low Volatility?
Volatility Index remained below ten
Stock market volatility remained low for another week as equity markets around the world soared to new highs in the week ending October 20. There were no negative surprises with no new developments from North Korea and a rather silent Trump Twitter handle. Higher hopes that the Trump administration will pass the proposed tax cuts were the key reason for the rally last week.
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US market performance
The S&P 500 Index (SPY), along with the other two indexes, posted new highs in the week ending October 13. The S&P 500 Index posted a 0.86% rise for the week. The Dow Jones Industrial Average Index (DOD) and the NASDAQ (QQQ) trended higher, posting gains of 2.0% and 0.35%, respectively. The US bond market (BND) retreated marginally as rate hikes and tax cut hopes pushed bond yields higher. The US dollar (UUP) managed to post weekly gains, as US economic data was in line with expectations.
VIX Index speculators continue to bet against volatility
The volatility index (VXX) rose marginally but remained below the 10.0 mark in the previous week. The index closed at 9.9, appreciating by 3.8% in the previous week. As per the latest Commitment of Trader’s Report released by the Commodity Futures Trading Commission (or CFTC), large speculators have decreased their overall net short positions to 168,571 contracts from 170,624 contracts through Tuesday, October 17.
We could see higher volatility this week if there are any roadblocks to US tax reform. Apart from this, the European Central Bank meeting and the Japanese elections could also cause volatility to rise. Throughout this series, we’ll discuss the outlook for different asset classes this week.