Key points:
- Decreased correlation leads to low stock market volatility
- Bond market stability contributes to muted stock volatility
- Nvidia stock decreases by more than 4% in a week
The stock market has recently been experiencing a period of calm, characterized by low volatility. This is due to a decrease in the correlation between individual stocks, meaning they are not moving in the same direction. As a result, the movements higher and lower are cancelling each other out, leading to a muted move at the index level.
The calming effect of the Treasury market is another contributing factor to the muted stock volatility. The ICE BofAML MOVE index, the bond market’s equivalent of the VIX, closed the week at 86.38, near its lowest level in over two years. This suggests that bonds are becoming a calming factor for the stock market.
The normalization of bond market volatility is a significant factor that could potentially maintain this period of low volatility for an extended period.
In terms of individual stocks, Nvidia experienced a decrease of more than 4% during the past week, indicating some volatility in its stock price, despite the overall calm in the market. Other stocks such as Meta Platforms also saw a decrease, while Alphabet, Amazon.com, and Tesla finished higher.
The economy and corporate earnings have shown resilience amid higher rates. With bond volatility normalizing and correlations low, it is suggested that volatility could remain low for quite some time.
