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Stock markets have stumbled into the new year, but a closely watched measure of expected volatility remains subdued, encouraging investors looking for new stock gains, although market participants are becoming complacent. This is worrying investors who are concerned that the
CBOE Volatility Index VIX,
The VIX index, commonly known by its ticker symbol VIX, fell nearly 0.7 points to 13.44 on Friday, as stocks rose and fell on the back of a better-than-expected December jobs report and a host of other economic indicators. Ta. His options-derived VIX is a measure of the expected volatility of the S&P 500 SPX over the next 30 days.
After ending 2023 at 12.45, VIX has been rising this week, but remains below its December high of 14.49 and well below its long-term average of around 20. Still, the gradual rise since Dec. 27 has contributed to pressure on the stock. Tom Lee, head of research at Fundstrat, said in a note Friday afternoon.
Stocks end 2023 on a high, with the Dow Jones Industrial Average DJIA posting several record closes and the S&P 500 posting an annual gain of more than 24%, the highest since January 3, 2022 The stock is less than 0.5% away from closing. On Friday, stocks continued their weekly decline, ending a nine-week streak of gains, the S&P 500’s longest streak since 2004.
Investors on Friday were grappling with expectations that the U.S. Federal Reserve would cut interest rates in 2024 after strong December jobs data.
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On the other hand, the VIX index rising above its December high “would signal further volatility to come. Conversely, a reversal towards the current low of 13.10 in 2024 would ease volatility. “This suggests that stocks are poised to stabilize in the coming weeks, increasing the likelihood of a return to the bull market in the second half of 2023,” said Tom Essay, founder of Sevens Report Research. , in a memo on Friday.
Aside from this week’s market weakness after a frothy run into 2023, investors may be pricing in a so-called soft landing for the economy alongside a steady downward trajectory for interest rates. Concerns remain.
Mark Dowding, chief investment officer at RBC BlueBay, said the recent easing in financial conditions, along with expectations for monetary easing, was enough to lift economic data and that interest rates would be cut on the schedule that markets expect. He said it could negate the need to implement it. Notes on asset management.
Dowding wrote that some assets have a soft landing fully priced in, and there is a risk that market participants will be disappointed if the data doesn’t match the narrative.
“We expect a difficult road ahead and perhaps a VIX below 14 won’t actually translate to prices,” he said. “Being overconfident for now may seem as wise as trusting the recent Tik Tok trend of eating 12 grapes at midnight to guarantee success this year.” , people usually feel a little hungover after a party.
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