After inflation fears rocked investors in the first few months of 2021, markets shifted to another mode of deep sleep.
Vix, the measure of expected volatility on the Wall Street S&P 500 capital index, fell to an all-time low of 15.7 points on Friday, rising above 80 in the early stages of the epidemic. The volatility in the foreign exchange markets produced by Deutsche Bank also fell to its lowest point since February 2020 last week.
Analysts say the quiet period is partly a reflection of the Federal Reserve’s wait-and-see tactics, which are ready to emerge from the spell of unusually high inflation without withdrawing financial support, the withdrawal of which is likely to be troubled markets. But some investors are getting nervous that complacency is starting to work.
“We are becoming more and more vigilant about the calm conditions on the stock exchanges,” said Gergely Majoros, a member of the investment fund of the European fund manager Karminyak. “It means you have to open your eyes wide to what lies ahead.”
In a research note, the investment committee of the Swiss bank Credit Suisse also warned of “high levels of investor self-satisfaction” in asset markets, noting that “there is a risk of lower risk of news flow than usual.”
Global stocks have risen as economies in developed countries recover from the coronavirus emergency, boosting corporate earnings prospects. But profits have plummeted in recent weeks, with some investors saying the good news is long gone. The FTSE All World benchmark for the emerging և emerging market gained more than 1.4% this month.
Major consumer price inflation in the United States reached 5 percent in the 12 months to May. 4.2 percent increase in April as prices were linked to the reopening of the economy ների supply chain bottlenecks such as used cars և goods rose,
Central banks have traditionally tightened financial conditions to combat spiraling prices. But the Fed, meeting this week, says the outbreak is temporary. We also managed to convince many investors.
“The markets, at least, agree with the following [Fed chair Jay] “Powell says the inflation we’re seeing is temporary,” said Margaret Vitrano, portfolio manager at ClearBridge Investments.
A survey of Bank of America 207 Global Fund executives responsible for $ 645 billion in clients this week found that more than seven in 10 people believe that post-epidemic inflation will be transient. Many have already reduced bond reserves in anticipation of easier Fed support for this market in the future, bringing bond bonds in portfolios to a three-year low. Investors say the negative stance on the bonds was another factor that persuaded asset managers to keep their stocks.
“Shares are still up this year, but not at the same rate as when activity picked up faster at the beginning of the year,” said Caroline Simmons, UBS Wealth Management UK Chief Investment Officer.
Historical evidence suggests that low volatility is not always a signal to sell stocks. Figures compiled by Schroders analyst Duncan Lamont showed that buying the S&P 500 from 1991 on a day when the Vix was in the 15-16 range would result in a 14.6% overall return over the next 12 months.
But a sense of calm in the markets was a sign of complacency that could crumble, analysts say, if inflation breaks ahead of the Fed.
“If steady inflation means higher inflows that companies can not afford. “Because household food and energy costs are also high, which really affects profitability,” says ClearBridge Vitrano. He said stock markets were “pulling water”, he said, “because it is too early to call for that.”
Foreign exchange markets have also been paralyzed by the Fed’s prospect of keeping its financial conditions free, as traders had previously expected.
The dollar index, which measures the stability of the US dollar against the currencies of trading partners, moved less than 1% this year after strengthening in the first quarter and then giving up most of its profits.
“The main story of inertia [currencies] “It’s quite clear,” said Paul Maggez, chief executive of JPMorgan FX Global Strategy.
The conference board predicts that in the second quarter of this year, US economic output will grow at an annual rate of 9 percent, after which it will moderate. It is expected that the companies’ revenues will also fall.
Analysts predict that the revenues of the companies included in the S&P 500 list will increase by a total of 35% this year, according to FactSet, reaching 12% profit in 2022. Profits in the Stoxx Europe 600 are expected to grow by 51% this year and by 14% in 2022.
“Right now, the only direction the Fed կենտրոն other central banks can take is cuts in housing, which could shake the relationship,” he said, driven by rising bond yields. “Markets are in standby mode. It is not a question of what will happen next, but when. “If you move too fast in the game, you will be beaten.”