Vix fear index at lowest level in 2 years

Posted on August 5, 2016

FILE - This July 16, 2013, file photo, shows a Wall Street street sign outside the New York Stock Exchange. Stocks are opening higher on Wall Street, Thursday, July 7, 2016, following solid gains in Europe and some encouraging reports on the U.S. economy. (AP Photo/Mark Lennihan, File)©AP

A popular gauge of expected stock market volatility and investor fear has slid to its lowest levels in two years, as a buoyant US jobs report and easy monetary policy have damped concerns over corporate earnings and the economy.

Chicago Board Options Exchange’s Vix index — which measures the expected volatility of the US stock market implied by derivatives — fell to a two-year low on Friday, as global stock markets rallied in the wake of strong US job creation and the Bank of England this week restarting its bond-buying programme.

    The Vix index fell to just 11.18 points on Friday — the last time the measure was this low was in the summer of 2014 — and it is close to the all-time record low of below 10 touched before the financial crisis. The gauge shot up to 26.7 points in the wake of the UK’s vote to leave the EU, but has quickly settled back.

    Traders say that ultra-aggressive central bank monetary policy has muffled volatility in financial markets and allowed investors to look past a mixed economic backdrop, helping push stock markets higher. The S&P 500 index hit a fresh record high on Friday, both intraday and at the close, while the Nasdaq also closed at a new high.

    The sentiment on risk assets has also brightened on expectations that a strong consumer will continue to support the US economy even as investment lags behind and other countries around the globe face economic woes. The non-farm payrolls report released on Friday showed that the economy created another 255,000 jobs in July, a much stronger reading than expected, helping buoy stocks.

    “Payrolls are displaying surprising strength, particularly given the lack of available and qualified workers at this stage in the employment cycle,” said Rick Rieder, chief investment officer for fixed income at BlackRock. “Further, we are witnessing a meaningful reduction in labour market slack, and various indicators suggest that firming wages are on the way.

    Nonetheless, some analysts worry that the low Vix reading is a sign of complacency over the dangers that still dog the US and global economy. August tends to be a sparsely traded month, with many fund managers on holiday, and even mild sell-offs can lead to severe choppiness.

    “It’s still a high-volatility world, and volatility can turn around quickly,” said Rocky Fishman, a strategist at Deutsche Bank. “The next sell-off could be volatile.”

    You must be logged in to post a comment Login