{"id":105837,"date":"2017-05-10T06:32:31","date_gmt":"2017-05-10T10:32:31","guid":{"rendered":"http:\/\/countingpips.com\/?p=105837"},"modified":"2017-05-10T06:32:31","modified_gmt":"2017-05-10T10:32:31","slug":"u-s-equities-touch-new-highs-still-boring","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/05\/u-s-equities-touch-new-highs-still-boring\/","title":{"rendered":"U.S. equities touch new highs, still boring!"},"content":{"rendered":"
May 10, 2017<\/div>
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Article by ForexTime<\/a><\/p>\n

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The best way to describe recent market price action is boring. Although S&P 500 touched a new record-high on Tuesday, the index has been trading in a range of less than 0.5% for the past ten days, and when excluding the rise of 0.41% on 5th May, it was a trading range of less than 0.2%.<\/p>\n

Low volatility indicates that investors seem to be relaxed for now. Although they\u2019re not willing to take much risk, they aren\u2019t worried about a sharp correction. Multiple factors may explain the low volatility: steady earnings, stable economic indicators, and a decline in equities correlation, limiting a one-sided move. One of the questions I hear all day, is how long can this prolonged period of low volatility last? But the more important question should be, what direction are equities going to take when volatility returns?<\/p>\n

First, let\u2019s examine how markets reacted in the immediate aftermath of historic low volatility levels:<\/p>\n

July 1993: The VIX fell to 9.11, S&P 500 gained 3.6% in the following eight weeks.<\/p>\n

December 1993: the VIX dropped to a low of 8.89, four weeks later the S&P 500 surged 2.6%, then fell by more than 7% in two months.<\/p>\n

December 2006: the VIX fell below 10. S&P 500 posted gains of 3.25% in ten weeks, followed by a 6.7% correction.<\/p>\n

The takeaway from these samples is that\u00a0for the most part, when the VIX falls below the 10 benchmark, equities make short-term gains, followed by a correction. On the longer-term, it\u2019s much different. For example, in 1995 the S&P 500 surged 37.2% and in 2008 crashed 36.55%, suggesting that the VIX is a poor indicator of long-term trends.<\/p>\n

A period of very low volatility doesn\u2019t persist for long, and it only needs little surprises, whether it’s macro factors, a change in earnings expectations, or a political shock to change investors\u2019 behavior.<\/p>\n

I still believe that valuations are overstretched, and if not supported by stronger earnings in the next two quarters, it will be hard to justify current price levels, especially considering that fixed income instruments will become more attractive as the Fed and other central banks start tightening monetary policies. I will also keep a close eye on oil prices, although I believe that we\u2019ll be ending the year above $50. Any sharp move to the downside from current levels will drag equities with it.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

Disclaimer: <\/strong>The content in this article comprises personal opinions and should not be construed as containing personal and\/or other investment advice and\/or an offer of and\/or solicitation for any transactions in financial instruments and\/or a guarantee and\/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.<\/em><\/p>\n

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\"Forex-Time-Logo\"Article by ForexTime<\/a><\/span><\/strong><\/p>\n

ForexTime Ltd (FXTM)<\/strong> is an award winning international online forex broker regulated by CySEC 185\/12 www.forextime.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Article by ForexTime The best way to describe recent market price action is boring. Although S&P 500 touched a new record-high on Tuesday, the index has been trading in a range of less than 0.5% for the past ten days, and when excluding the rise of 0.41% on 5th May, it was a trading range […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-105837","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/105837","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=105837"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/105837\/revisions"}],"predecessor-version":[{"id":105846,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/105837\/revisions\/105846"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=105837"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=105837"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=105837"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}