Weekly Update

Volatility Drop Usually a Positive Signal

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Published April 9, 2021

The past few days have marked an important milestone in the market’s recovery. The volatility index (VIX) measuring the relative “fear” of investors has dropped below its key reference line as the chart below shows. Fear has subsided and the market has returned to normal levels.

VIX has dropped below its key reference line

The charts below show how prior instances of a declining volatility index generally coincided with positive stock market moves. They

also show that once the VIX drops below 20 there are usually several more months of positive market behavior.

VIX drops below 20

As time goes on the market adjusts, as it always does. Investors get TOO relaxed and complacent. Something shocks them back into realizing that the stock market carries risk. The cycle starts anew. For now, market participants find little to worry about and prices keep grinding higher.

Several more months of positive market behavior?


Market Update

Coming back from a Friday off, the stock market had its first chance to respond to the monthly jobs report. That report showed the strongest job gains in months as the recovery accelerated. Stocks liked the report, popping +1.4% higher Monday with tech/consumer stocks continuing their recent outperformance. Flat trading Tuesday and Wednesday with leisure stocks bucking the trend to post solid gains. Restaurants, airlines, hotel and resort companies are all anticipating a sharp resumption of business as summer comes. Tech/consumer stocks took flight Thursday as investors appeared to respond positively to this week’s modest decline in interest rates. The Nasdaq rose +1% while the broad market posted a third straight day of almost no change. Friday brought another record high for the S&P 500 with a +0.7% move higher on the day. Strength in megacap tech/consumer stocks once again drove the advance while housing stocks also jumped. Supporting recent market gains, Apple (AAPL) has moved higher 10 of the past 11 sessions as the market bellweather recovers its February dip.

Stocks posted their third straight weekly gain with a +2.71% rise. The Nasdaq 100 (QQQ) added +3.86%. Smallcap stocks (IWM) continued digesting their massive November to February move with a -0.52% rest.

Warm wishes and until next week.