On Monday on Wall Street, all three major stock indices reached new records. Investor sentiment is excellent due to the trade agreement between China and the United States, despite the lack of specific details, e.g. regarding the purchase of agricultural products.
During the first session of the week, Dow Jones rose 101 points to 28236, an increase of 0.4 percent. The S&P 500 climbed 23 points higher, i.e. 0.7 percent to 3191 points, and Nasdaq gained 79 points or 0.9 percent and increased to 8814 points. At the same time, the futures contract for the VIX fear index fell near to 12 points, i.e. to the lowest level since the beginning of 2018. Such a low level of VIX futures may indicate that investors expect very calm sessions on Wall Street, in particular on S&P 500 to which VIX applies. Calmness and the belief that rise is not threatened could be considered as a significant threat by itself.
In addition, it is worth paying attention to the fact that positioning on futures contracts on VIX indicated that investors have never before expected such a significant decrease in the expected volatility on the S&P 500 index, which is briefly indicated by the VIX index. The lower its value, the smaller the fear on the market and vice versa. However, the volatility may word as follow, after periods of low values, periods of higher values may occur, especially at such significant oversold market.
In terms of valuations, the value of companies, increase in their profits, etc., on Wall Street, contrary to popular belief, we do not have a speculative bubble, and the shares went up in nominal terms only in USD, but not so much in valuations to talk about the bubble. Nevertheless, the short-term risk described is a huge belief in calmness and possible further rise - it is very one-sided. This may affect not only the US but also European indices, e.g. the German DAX index, which is also correlated with the S&P 500.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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