A closely watched measure of U.S. stock market volatility fell to its lowest level since the start of the coronavirus pandemic, even as investors worried about the direction of interest rates and inflation.
The Vix index — a measure of options implied volatility for the S&P 500 over the next 30 days — fell to 13.5 this week. That was the lowest level since late January 2020, shortly before the pandemic shut down economies around the world and sparked panic in financial markets.
Despite rising interest rates, the failure of several regional U.S. banks in March and general uncertainty about the future path of inflation, the Vix has retreated from its October peak and inflation remains well above the 2% target set by many central banks on both sides of the Atlantic. .
Led by a handful of tech stocks, the S&P 500 returned to bull market territory last week, defined as gains of 20% or more from its most recent low in October. The last time it fell more than 1% in one day was on Feb. 3, Refinitiv data showed.
However, the calm in the market may not last for long. “Normally, when investors are this complacent, volatility spikes in the coming weeks,” said James Demmert, chief investment officer at Main Street Research.
Others argue that the Vix is no longer relevant given the growing popularity of short-term trading and derivatives, especially zero-day options. In response, the 1-day VIX, launched in late April, has since fallen 4 percent, showing that even by that measure, stocks are far from jittery.
By contrast, the bond market has been relatively volatile. The Merrill Lynch Option Volatility Estimate (Move) Index, the Vix’s impact on stocks, “hovered at levels typically seen during crises” in March after the Silicon Valley bank collapse, according to the investment committee of French asset manager Carmignac.
The Move index has fallen about 70 percentage points to 115 in the past two and a half months, but it is still 65 percentage points higher than at the beginning of 2021 and above the 10-year average of 75.