{"id":13745,"date":"2023-09-19T15:19:31","date_gmt":"2023-09-19T15:19:31","guid":{"rendered":"https:\/\/prosfunds.com\/markets\/what-the-mysterious-shrinking-of-wall-streets-fear-gauge-means-for-stocks-according-to-datatrek\/"},"modified":"2023-09-19T15:19:32","modified_gmt":"2023-09-19T15:19:32","slug":"what-the-mysterious-shrinking-of-wall-streets-fear-gauge-means-for-stocks-according-to-datatrek","status":"publish","type":"post","link":"https:\/\/prosfunds.com\/?p=13745","title":{"rendered":"What the \u2018mysterious shrinking\u2019 of Wall Street\u2019s fear gauge means for stocks, according to DataTrek"},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0002517246\" role=\"document\">\n<p>Wall Street\u2019s so-called fear gauge has been subdued this year, in a \u201cmysterious shrinking\u201d pattern, that\u2019s a bullish signal for equities, according to DataTrek Research.<\/p>\n<p>Declines for the Cboe Volatility Index<br \/>\n        VIX<br \/>\n       fear gauge come despite continued worries over inflation and elevated interest rates.<\/p>\n<div class=\"paywall\">\n<p>\u201cWe\u2019ve been saying for several months that a low VIX is a sign that U.S. stocks are in a bull market rather than being excessively delusional about the obvious challenges ahead,\u201d said Nicholas Colas, co-founder of DataTrek, in a note emailed Monday. \u201cWe still believe the next few weeks will be choppy, however.\u201d<\/p>\n<p>The gauge, known by its ticker VIX, has dropped more than 35% so far this year and is trading below its long-term average, according to FactSet data. Its trading levels are derived from options contracts tied to the S&amp;P 500, the U.S. stock benchmark that has rallied 16% in 2023 through Monday.<\/p>\n<p>Last week the VIX made \u201ca new post-pandemic crisis low,\u201d finishing below 13 on Sept. 14 in a \u201crare occurrence\u201d for the index that was a positive sign for stocks over the next three months, Colas\u2019s note shows. That\u2019s even if it suggests near-term \u201cchoppiness\u201d will continue, he said.<\/p>\n<p>On Monday the VIX closed at 14, well below its long-run average of around 20. The measure ended Sept. 14 at 12.8.<\/p>\n<p>\u201cAt first glance, this makes little sense,\u201d Colas said. \u201cThe VIX is supposed to be Wall Street\u2019s \u2018Fear Index\u2019 and it would appear \u201cthere\u2019s plenty to be fearful of just now.\u201d<\/p>\n<h4><strong>\u2018Cloudy picture\u2019<\/strong> <\/h4>\n<p>Colas cited several areas of concern, including uncertainty surrounding inflation, the recent jump in oil prices<br \/>\n        CL00,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/209723049\/delayed\" class=\"positive\">+1.36%<\/bg-quote><br \/>\n       and \u201ca cloudy picture\u201d of how long the Fed Reserve will keep interest rates elevated, for his rationale as to why investor might feel fearful.\u00a0<\/p>\n<p>The Fed has been trying to slow the rise in the cost of living in the U.S. via its restrictive monetary policy, lifting its benchmark rate aggressively over the past 18 months.<\/p>\n<p>There also has been the recent climb in Treasury rates that has weighed on stocks lately, with 10-year Treasury yields looking \u201cset on making new decade-plus highs,\u201d said Colas.\u00a0<\/p>\n<p>The yield on the 10-year Treasury note<br \/>\n        BX:TMUBMUSD10Y<br \/>\n       finished Monday at 4.318%, according to Dow Jones Market Data. That\u2019s around levels seen in late 2007, FactSet data show.<\/p>\n<h4><strong>\u2018Seasonal peaks\u2019 in volatility<\/strong><\/h4>\n<p>The VIX had kicked off 2023 trading below its long-run average, with Colas saying in January that it was looking a lot more like 2021, a year in which stocks rallied, rather than 2022, when equities tanked as the Fed rapidly hiked rates.\u00a0<\/p>\n<p><strong>See:<\/strong> Wall Street\u2019s \u2018fear gauge\u2019 VIX shaping up more like 2021 than 2022, as U.S. stocks rally this year, says DataTrek<\/p>\n<p>Meanwhile, September and October are known for \u201cseasonal peaks in equity market volatility,\u201d according to Colas.<\/p>\n<p>U.S. stocks have slumped so far this month, after falling in August. The S&amp;P 500, which dropped 1.8% last month, is down 1.2% in September through Monday,  FactSet data show.<\/p>\n<p>The S&amp;P 500<br \/>\n        SPX<br \/>\n       closed 0.1% higher on Monday while the Nasdaq Composite<br \/>\n        COMP<br \/>\n       and Dow Jones Industrial Average<br \/>\n        DJIA<br \/>\n       each finished about flat, as investors digested fresh data showing a drop in confidence among homebuilders this month amid elevated mortgage rates.\u00a0<\/p>\n<p>Stock-market investors also have been monitoring the U.S. Treasury market\u2019s inverted yield curve, or when shorter-term yields climb above long-term rates, as that historically has preceded a recession.<\/p>\n<p>There\u2019s also some concern over the increased popularity of zero-day options in the stock market, as \u201cyou\u2019d think their growing usage would push anticipated volatility higher, not lower,\u201d Colas said.<\/p>\n<p>\u201cWe doubt options desks have just walked away from trading 30-day options\u201d on S&amp;P 500 futures, he said. \u201cIf there is money to be made in a financial asset, someone invariably trades it.\u201d<\/p>\n<p>The Cboe Volatility Index measures 30-day expected volatility of the U.S. stock market.\u00a0<\/p>\n<p>\u201cWhat the ultra-low VIX is telling us is that none of these concerns matter enough to offset a fundamentally strong picture for U.S. corporate earnings and the belief that the Federal Reserve is largely done hiking rates,\u201d said Colas. \u201cEquities are dismissing the possibility of a recession over the next 1-2 years, no matter what an inverted yield curve has historically said on that point.\u201d<\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/story\/what-the-mysterious-shrinking-of-wall-streets-fear-gauge-means-for-stocks-according-to-datatrek-1eac591d?mod=markets\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Wall Street\u2019s so-called fear gauge has been subdued this year, in a \u201cmysterious shrinking\u201d pattern, that\u2019s a bullish signal for equities, according to DataTrek Research. Declines for the Cboe Volatility Index VIX fear gauge come despite continued worries over inflation and elevated interest rates. \u201cWe\u2019ve been saying for several months that a low VIX is [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":13746,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[33],"tags":[],"class_list":{"0":"post-13745","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What the \u2018mysterious shrinking\u2019 of Wall Street\u2019s fear gauge means for stocks, according to DataTrek | Prosfunds<\/title>\n<meta name=\"description\" content=\"Wall Street\u2019s so-called fear gauge has been subdued this year, in a \u201cmysterious shrinking\u201d 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