The quietest week of stocks until 2021 has been wondering on Wall Street what will break the calm.
Stock trading volume declined as the S&P 500 marched to an all-time high, with the five-day average on U.S. stock markets falling to 9.5 billion traded shares – the lowest since October, according to Date Bloomberg. Friday was particularly placid, with only 8.7 billion shares on the move, the lowest daily total since Christmas Eve.
Pause FELT particularly abrupt after 13 months of frantic trading, it brought the fastest bear market of all time and a furious rally that has not been equal in 90 years. Blocked home traders have turned online brokerages into casinos, while November vaccine approvals have sparked more euphoria, spurring investors into stocks they had avoided for months. Since then, more than $ 575 billion has flowed into the market, surpassing total revenues in the last 12 years combined, according to Bank of America data.
All this changed in April and theories abound as to what lies behind it. Retail mania has they cooled as economic constraints relaxed. Stimulation bets have been set. A brief sales crisis caused higher yields was calmed by a chorus of Federal Reserve officials. Economic data are beginning to help justify evaluations. There are only a few major problems left to drive massive bets on the market. It doesn’t matter, say the money managers, the silence will not last.
“We were going 100 miles an hour and now we’re back in the speed limit,” Arthur Hogan, chief market strategist at National Securities, said by telephone. “We will see a resurgence of volumes and volatility, because this year will be like no other year that people have ever seen in terms of economic growth, earnings growth, inflation, a new framework for the Federal Reserve. ”
After a 1.4% rally on Monday, the S&P 500 broke three more records to end the week as trading volumes slowed to pre-pandemic averages. The index recorded a third consecutive weekly gain, and the Cboe volatility index fell to its lowest level in 14 months. Betting on Fed increases led to the largest weekly decline in Treasury yields for 5 years since June.
Traders hit by the pandemic tumult are calm and show signs of more turmoil. Take VIX. At 17, it is stubbornly growing compared to its average of 14.9 in the seven years to 2019. Bets that will bring more market chaos in the summer have pushed the spread between VIX and involved 30-day volatility. four months so far the highest level in almost nine years.
Bond markets show similar expectations for fireworks – short interest for the $ 14 billion The 20-year-old iShares treasury bond fund, as a percentage of outstanding shares, rose to its highest level since 2017 this week, IHS Markit Ltd. data show, even as the ETF rallied.
Meanwhile, the Wall Street forecast considers that the lead that pushed the S&P 500 to the dot-com ratings is likely to be exhausted for that year. At an all-time high of 4,128.80, the index closed on Friday ahead of the average year-end target of 4,099 from strategies pursued by Bloomberg.
Skeptics cited everything from rising yields to widespread valuation and potential tax increases as a precaution. Tobias Levkovich, chief American equity strategist at Citigroup Inc. whose 2021 target is 3,800, the Fed is expected to start lowering monetary stimulus by the end of this year, and earnings guidance weakening, raising front winds for equities and boosting volatility.
“The sentiment is in very worrying territory as is the valuation, yet cash flows continue to push clues bigger, ”Levkovich wrote in a note earlier this week. “The huge fiscal stimulus and the supportive central banks have created the notion that there is no need to be a risk averse,” he added. “Indeed, all developments are perceived as positive news. However, such unilateral views are not usually a good starting point. ”
Kim Forrest of Bokeh Capital Partners is more optimistic. She expects the launch of what is expected to be the best earnings season of 2018 to bring the stocks back to life, with big creditors, including JPMorgan Chase & Co. and Citigroup Inc., which will report next week. Profits in the first quarter of S&P 500 companies probably expanded by 24%, led by carmakers, banks and retailers, according to data compiled by Bloomberg Intelligence.
“Unless there are other lunatics like Covid, profits always drive the market,” said Forrest, the company’s chief investment officer. “We’re heading into the earnings season, and the bar has been very low and I think the first quarter has been pretty good, so it’s encouraging.”
– With the assistance of Vildana Hajric and Claire Ballentine