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The Volatility Index Suggests the Markets Are Complacent Again

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Tech stocks and broader markets continue to rise

Tech stocks edged higher yet again on February 20, extending the gains in the NASDAQ as the markets closely examined the Fed’s tone upon the release of the Federal Open Market Committee’s January meeting minutes.

While the S&P 500 Index (SPY) inched up 0.2% on February 20, the tech-rich NASDAQ Composite Index edged up just 0.03%. The resistance may have been because the latter was close to its key short-term resistance level of ~7,500. The NASDAQ Composite Index ended the February 20 trading day at 7,489.07.

While the markets were cautious for most of the session, the indexes ended up in the positive on the day as the Fed’s tone remained dovish.

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The markets have been closely following the Fed’s tone

Fed officials said that they would soon announce a plan to end quantitative tightening, or selling bonds to shrink the bloated balance sheet. The Fed expects to stop quantitative tightening by the end of this year, consistent with what it said a month ago.

The Fed’s dovish tone meant that the NASDAQ stayed in the positive—albeit just barely. However, the CBOE Volatility Index (VXX), which measures the implied volatility in the S&P 500 Index, is now at a four-month low of 14.02.

The low volatility may mean that the markets have become slightly complacent again, especially with many risks still hovering around. While US-China trade tensions have toned down a bit, they remain an uncertainty. Corporate earnings growth is also likely to be mild this year at best.

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