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Why Volatility Remains Subdued This Summer

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Updated

The summer slump

Global markets remained directionless in the previous week amid thin volumes and subdued volatility. US stock indexes ended the week on a marginally positive note after a positive bump in the technology sector (XLK) on the last trading session in the week. The S&P 500 Index (SPY) closed 0.21% higher, and the Dow 30 (UDOW) closed 0.05% higher. 

The Russell US Indexes underwent their annual reconstruction exercise, which was done at close on Friday. Stocks in the indexes are analyzed to see if the index accounts for changes in valuations. There was a minor bump in the tech sector in the last hour of trading as investors and many fund managers scrambled to readjust their portfolios to match the index. The tech sector has been a major contributor to the market rally since the elections and now has a larger share in the Russell indexes.

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Volatility remains low in the summer months

Economic calendars from across the globe were out of focus as there were no major data releases in the previous week. The US calendar was filled with speeches from FOMC members who seemed to be non-committal in regards to the future of interest rate hikes at this point and would prefer to wait for further evidence of US jobs and inflation growth to move rates again.

The S&P 500 VIX Index (VXX), which is considered as a gauge for investors’ anxiety, has fallen further. The index closed at 10.0 for the week ending June 23, clocking a decline of 3.5%. As per the Commodity Futures Trading Commission’s (or CTFC) Commitment of Traders report, large speculators have increased the overall net short position in the previous week by 13,000 contracts, a reversal from the previous week’s rise, indicating that speculators are positioning for a further fall in volatility in the coming weeks.

Series overview

In the next parts of this series, we’ll analyze how different asset classes like bonds (BND) and global equities (VTI) performed in the previous week and what to look forward to in the coming week.

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