BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Stock Volatility Simmers As "Fear" Measures Yanked From 2015 Lows

Following
This article is more than 8 years old.

Stock investor sentiment was rattled Friday as worrisome headlines from overseas diverted attention from disappointing earnings from GE (GE), Honeywell (HON), and American Express (AXP) and economic data that did little to change Wall Street’s collective mind about go-slow interest-rate timing. Trading this week could prove a valuable test of bull market resiliency after late-week volatility.

The biggest influence: eurozone stock averages dropped after Greece’s banks were asked to divest Greek government debt holdings to limit the contagion risk from any potential defaults. Separately, Chinese regulatory authorities opened the door for fund managers to lend shares for short selling, and will also expand the number of stocks investors can sell short. Industry analysts said it’s a move that could be aimed at cooling red-hot markets, including a 17% year-to-date gain in Hong Kong’s Hang Seng. Fresh headlines from China on Sunday revealed a cut to banking reserve requirements with the intent of stimulating the growth engine’s economy.

There were more drivers at work. Supportive for S&P 500 (SPX) energy stocks, crude oil futures rallied sharply through $54 a barrel on Friday and are now threatening resistance at $58.

All told, it was enough to drive the SPX down 23.81 points (1.1%) on Friday to suffer its biggest single-day loss in more than a month. Now, as the floodgates open on Q1 earnings, investors are wondering whether these quarterly reports can help shift focus away from macro events. Or will disappointing results potentially add to the escalating levels of investor angst?

Multiple Volatility Measures Rise

Many measures of market volatility perked up from a lull late last week. The CBOE Volatility Index (VIX), for instance, hit an intraday high of 15.02 and finished up 1.28 to 13.89 Friday. The index, which tracks the implied volatility priced into short-term SPX options, dropped toward the lower end of its 2015 range on Thursday before the 10.4% climb on Friday (figure 1).

VIX wasn’t alone. Implied volatility across other stock measures rose by 10% to 11% Friday. But the trend so far in April had been in the other direction. VIX is down 9% month to date. What’s more, the decline in volatility has folded in several stock measures as well as commodities measures (see table below). Maybe Friday was simply a bit of a wake-up call, as many barometers of volatility and investor sentiment had dropped to the lower end of the 2015 range and may have been overdue for a bounce.

April (MTD) Friday, 4/17/2015
S&P 500 Volatility VIX -9% 10%
NASDAQ-100 Volatility VXN -7% 11%
Dow Volatility VXD -7% 11%
Russell Small Cap Volatility RVX -6% 10%
Oil Volatility OVX -22% -3%
Gold Volatility GVZ -11% 0%
Emerging Markets Volatility VXEEM 1% 10%
Brazil Volatility VXEWZ -3% 1%
Euro Volatility EVZ -8% -3%

 
Tech Week in Earnings

The global focus may tighten this week, considering the quickened pace of earnings releases. The new batch will likely draw tighter scrutiny after a mixed bag from the first round, with Intel (INTC), Netflix (NFLX), and General Electric (GE) topping estimates but noteworthy misses from Bank of America (BAC), SanDisk (SNDK), and Advanced Micro Devices (AMD).

This week’s marquee earnings names include Dow components Coca-Cola (KO), McDonald’s (MCD), Boeing (BA), Verizon (VZ), and AT&T (T) midweek. Hundreds of S&P 500 constituents will be releasing results, too. And, we can safely call this “tech week” on the earnings front. Count em: Yahoo (YHOO), Facebook (FB), eBay (EBAY), Qualcomm (QCOM), Google (GOOG) (GOOGL), and Microsoft (MSFT) are among the firms due with earnings. This is an important sector and has been a bright spot the last few years. The important thing to listen for here is CEO sentiment on strong-dollar impact on earnings as well as domestic and worldwide economic forecasts.

As for the economic calendar, existing-home sales figures due Wednesday and new-home sales scheduled for Thursday could face a tougher Street test after housing construction starts issued last week missed the mark. Otherwise, durable goods data on the docket for Friday caps a light week for economic news (see figure 2 for the full lineup). Economic news will pick up significantly in the last week of April, featuring a granddaddy of events: the next Federal Reserve meeting on April 29.

Good trading,

JJ

@TDAJJKinahan

TD Ameritrade, Inc., member FINRA/SIPC. Commentary provided for educational purposes only. Past performance of a security, strategy, or index is no guarantee of future results or investment success. Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before investing. Supporting documentation for any claims, comparison, statistics, or other technical data will be supplied upon request.