Fear Takes A Holiday As VIX Index Falls To 3-Year Low

The VIX Index – a widely followed measure of US stock market volatility — slid to a three-year low on Thursday (Apr. 28), suggesting that investors are unusually serene these days when it comes evaluating the outlook for risk. In fact, investor sentiment has almost never been calmer, according to the VIX. The all-time low for the so-called fear index, which dates to 1990, is 9.48 on Dec. 23, 1993, based on daily data. Considering recent history, it wouldn’t be surprising to see the VIX touch a new record low in the days ahead.

What’s driving the market’s peaceful, easy feeling? Maybe it’s a function of expectations (reasonable or not) that President Trump’s economic policies will triumph and growth will eventually ramp up. But the case for making such a leap of faith rests on thin ice if the administration’s record to date is a guide.

Some critics of the White House charge that the President’s first 100 days have been a “failure” and the “worst on record.” Presidential biographer David McCullough agrees, saying that the administration’s start is the “worst ever” in US history. Fortune lists “7 Economic Promises President Trump Kept in His First 100 Days,” although minds will differ on whether this inventory provides the basis for optimism on the US economic outlook.

In any case, the stock market has no complaints — the S&P 500 closed near an all-time high yesterday. In fact, the financial bliss isn’t limited to equities. A strategist at Bank of America Merrill Lynch wrote in a note to clients on Thursday that “our derivatives strategy team recently noted that several asset classes were pricing a ‘world almost free of risk’ ”.

The placid mood seems a bit strange if you’ve been reading about the Trump’s comments on the potential for war on the Korean peninsula. “There is a chance that we could end up having a major, major conflict with North Korea. Absolutely,” the President told Reuters yesterday. The stakes are high, of course, given that North Korea is armed to the teeth, including nuclear weapons. “We’d love to solve things diplomatically but it’s very difficult,” the President says. Not exactly the traditional basis for a bull market, but the crowd has apparently revised its thinking.