The stock market has stumbled into the new year, but a closely watched measure of expected volatility remains subdued, encouraging investors looking for renewed gains in stocks but worrying those who fear market participants are complacent.
The Cboe Volatility Index
VIX,
widely known by its symbol VIX, fell nearly 0.7 points on Friday to 13.44 as stocks swung between gains and losses following a better-than-expected December jobs report and a host of other economic data. The options-derived VIX is a measure of the expected S&P 500
SPX
volatility in the next 30 days.
The VIX is up on the week, after ending 2023 at 12.45, but remains below its December high of 14.49 and well below its long-term average near 20. Still, its rise since December 27 has contributed to pressure on stocks. Tom Lee, head of research at Fundstrat, said in a note Friday afternoon.
Stocks ended 2023 with a rise that saw the Dow Jones Industrial Average
DJIA
achieved several record closes, while the S&P 500 posted a year-over-year increase of more than 24% and was less than 0.5% from its record close on January 3, 2022. Stocks were on track for weekly declines on Friday, which would break a streak of nine consecutive weekly advances, the longest stretch for the S&P 500 since 2004.
On Friday, investors were grappling with expectations of Federal Reserve rate cuts in 2024 following December's positive jobs report.
Live Market Watching: Stocks swing after better-than-expected payrolls report
Meanwhile, a break above the December high for the VIX โwould suggest greater volatility lies ahead. โConversely, a reversal towards the current 2024 low of 13.10 would suggest volatility is easing and stocks would be in a better position to stabilize in the coming weeks and potentially resume the late 2023 rally,โ Tom said. Essaye, founder of Sevens Report Research. , in a note on Friday.
Aside from this week's market weakness, which came after a frothy finish to 2023, concerns remain that investors have factored in the economy's so-called soft landing along with a gentle downward trajectory in rates. of interest.
The recent easing of financial conditions, associated with hopes for monetary easing, has been enough to help improve economic data and potentially negate the need for rate cuts on the timeline markets expect, said Mark Dowding, director of RBC BlueBay investments. Asset Management, in note.
With a soft landing fully priced in on some assets, there is a risk that market participants will be disappointed if the data does not fit the narrative, Dowding wrote.
"We can see obstacles on the road ahead and arguably a VIX below 14 is really not a price for this," he said. โBeing overconfident for now may end up looking as wise as relying on the recent Tik-Tok trend of eating 12 grapes at the stroke of midnight to ensure success in the coming year. Experience shows that after a party there usually comes a bit of a hangover.โ
