One of Wall Street’s most popular indicators of market fear tumbled to its lowest level since late January as the Nasdaq Composite Index recorded a second record close in as many sessions, suggesting that the appetite for risk, perhaps alongside investor complacency, is re-emerging in the stock market.
The Cboe Volatility Index VIX VIX, -2.67% which measures expectations for volatility in the S&P 500 SPX, +0.07% over the coming 30 days, fell 2.7% to 12.40 on Tuesday, marking its lowest finish since it hit 11.08 on Jan. 26, contributing to the so-called fear gauge’s nearly 20% retreat thus far in June, according to FactSet data. The VIX has shed 8% in the first full week of the early month and has given up 34% over the past three months, though it is still up 12.3% year to date.
Tuesday’s closing level for the VIX is notable because the closely watched indicator tends to move inversely to equity benchmarks, falling as stocks rally and soaring as equity indexes crater.
Back on Feb. 5, the VIX surged by around 116% to 37.32, well above its historic average of around 19.5 and marking its sharpest daily rise in its history as the Dow Jones Industrial Average DJIA, -0.06% the S&P 500 index SPX, +0.07% and the Nasdaq Composite Index COMP, +0.41% got rocked, abruptly halting a period of relentless records for equity benchmarks that had prevailed throughout 2017 and most of January.
The VIX’s recent retrenchment comes as technology and internet shares, including Amazon.com Inc. AMZN, +1.87% Netflix Inc. NFLX, +1.10% and Apple Inc. AAPL, +0.77% among the largest and most influential companies in the market, have staged a multisession advance that helped to propel the Nasdaq to back-to-back all-time closing highs on Monday and Tuesday.
Because the VIX reflects bullish and bearish options bets on the S&P 500, industry watchers sometimes view a subdued gauge as a sign that investors are becoming too complacent about possible shocks to the system.
That is particularly notable given that VIX reached a two-month peak above 18 at the end of May, triggered by political turmoil in Italy, which sent equity markets lower and the yields of the benchmark 10-year Treasury TMUBMUSD10Y, +0.44% which move inversely to prices, lower.
Indeed, concerns about Italy’s political drama, which could potentially have implications for the country’s membership in the euro EURUSD, +0.0939% and the European Union, haven’t entirely dissipated.
Newly installed Prime Minister Giuseppe Conte on Tuesday stoked fresh fears that Rome’s antiestablishment contingent may push for fiscal policies that are at odds with the EU, a potentially problematic scenario for markets.
Still, tech stocks have steadily advanced amid persistent concerns about global trade tensions following the Trump administration’s decision last week to implement previously threatened tariffs on steel and aluminum imports from the European Union, Canada and Mexico, drawing a rebuke from Washington’s six partners in the Group of Seven nations and prompting retaliation from trade partners.
Wall Street may believe the tech heavyweights have the wherewithal to increase earnings even if amid fears that the economy, entering its ninth year of expansion, begins to peter out.
