Why Market Volatility Could Fall This Week



Stock market volatility retreats

Many risks that pushed stock market volatility higher in the last few weeks have started to retreat, which helped equity market indexes last week. The tensions surrounding Syria have calmed down, as the US-led strike was a one-off event. President Trump paused further sanctions on Russia, and Trump’s planned meeting with Kim Jong Un after the latter said North Korea would end nuclear tests pushed a major geopolitical risk off the table for now. The risk of a flattening yield curve has also reversed as the US ten-year yield breached the February high on the back of renewed inflation expectations.

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US market performance

The US indexes managed to close in the green despite a sharp sell-off on Friday. The S&P 500 Index (SPY) gained 0.52% in the previous week supported by the energy, industrial, and financial (XLF) sectors. Similar gains were posted by the Deutsche Bank’s Dogs of the Dow ETN (DOD) and the PowerShares QQQ Trust Series (QQQ). They rose 0.42% and 0.56%, respectively. With no major risks threatening the markets, earnings are likely to drive the price action this week.

VIX index bulls pare bets on further volatility

The CBOE Volatility Index, or VIX, which is a measure of investor expectations for future volatility and tracked by ETFs such as the iPath S&P 500 VIX short-term futures (VXX), depreciated 3.0% in the week ending April 20 and closed at 16.9.

As per the latest commitment of trader’s (or COT) report, released by the Commodity Futures Trading Commission (or CFTC), large speculators, which include hedge funds, have decreased their long volatility positions by 15,000 from 92,900 contracts to 78,000 contracts. There are many large companies scheduled to report their earnings this week. Earnings will likely remain the focus for markets this week.


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