Rising Stocks and Bonds Continue to Lower Volatility


Dec. 4 2020, Updated 10:53 a.m. ET

Volatility continues to trend lower

Last week, volatility in global markets continued to trend lower as US markets, barring the Dow 30, closed on a positive note. Better-than-expected earnings from US companies boosted the markets to new peaks, with the S&P 500 (SPY) closing at 2,472.54—up by 0.54% for the week. The NASDAQ (QQQ) rose 1.3% from the previous week, and the Dow Jones Industrial Average (DOD) closed marginally lower, losing 0.27%. US economic data was mixed. Housing data was positive, while the Philadelphia Federal Index was below expectations.

Other segments of the financial markets, bonds, and currencies reflected positive sentiment in equity markets. Bond markets (BND) continued to bounce back after the Fed’s change of tone, and the US dollar (UUP) remained weak as other major economies contemplated monetary tightening.

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Volatility moving towards multi-decade low

The VIX (VXX), a volatility index, continued to trend lower last week. In the week ended July 22, it fell 1.6%, an extension to the 15% drop seen the week before. Investors use the VIX to hedge their portfolios against any uncertain events, and the value of this index goes up in times of uncertainty.

According to the CFTC’s (US Commodity Futures Trading Commission) latest Commitments of Traders report, large speculators and traders increased their net short positions to 140,638 contracts from 110,288 contracts. Speculators are adding to short VIX positions, meaning that they expect a further decline in volatility in the near term.

Series overview

In this series, we’ll analyze how different asset classes performed last week, and discuss their outlook.


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