VIX Below 20, Record Duration of Yield Curve Inversion, and Canadian Weekly Chart Highlights

More charts, less words, primarily Canadian focus.

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VIX Nearing 100 Consecutive Days Below the 20 Level

The Longest Yield Curve Inversion on Record

Highlights from Canadian Weekly Charts

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MARKET UPDATE

Equity futures inched up and Treasuries fell as investors remained cautious while monitoring diplomatic efforts to manage the Israel-Hamas conflict.

US Treasuries saw a rise last week (yields down) amid worries that Middle East tensions could push the global economy into a recession, providing a temporary halt to a five-week selloff. The Middle East situation compounds existing concerns regarding the economy and interest rates, all while the latest earnings reporting season begins. Crude oil surged in response to concerns that the conflict in the Middle East could disrupt the region and limit worldwide energy supplies.

The VIX experienced an almost 16% increase on Friday but managed to close below the 20 level once again. We are now approaching 100 consecutive days with the VIX closing below 20, marking the longest streak since October 2018. Strangely, this period of low volatility aligns with the yield curve (10Yr - 3M) being inverted for the most consecutive days on record.

The VIX remains consistently below the 20 level

We are now approaching 100 days with the VIX closing below 20, the longest streak since October 2018.

It is surprising the VIX has stayed below 20, considering the ongoing geopolitical tensions and the message from the yield curve, which has now been inverted for the most consecutive days on record.

Here are some commonly cited factors for the subdued volatility in equity markets.

• Implied correlations have declined due to the narrow scope of this year's rally, resulting in intra-day stock movements that offset each other and consequently reduce overall volatility.
• Investors’ option preferences of selling calls and buying puts has, in the end, played a role in maintaining stability in the VIX. When an investor sells an option, it infuses liquidity into the market, thanks to the hedging activities of the option dealer on the opposite side, which tends to mitigate volatility. More on this in article below.A Hot Options Trade Is Muting Wall Street’s Famous Fear Gauge

Equity volatility is also low relative to other asset classes. The chart below shows the spread between 3-month implied volatility of long duration bonds as measured by the TLT vs the S&P500 ETF (SPY) is at all time highs.

One thing that is certain is that in order to encounter high volatility, there must initially be a phase of low volatility.

Canadian Weekend Chart Highlights: The Latest Trends

Oil and Natural Gas Stocks Continue to Lead the Way

Breakout Candidate in Materials

Place to Hide in the Canadian Financial Sector

Significant Breakdown in Utes

Fading Momentum in Lumber Stocks

That's all for today.

Source for all charts (unless otherwise specified): Bloomberg, Mulvihill Capital Management Inc.

Disclosures

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