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In stark contrast to the complete madness of the world outside, an eerie stillness continues to hang over the stock market. Not that investors are complaining. They just keep riding out cyber-attacks, North Korean missile launches, Donald Trump’s [take your pick], and any number of other nerve-rattling developments, while major indexes stubbornly remain in the neighborhood of record highs.
Technically speaking, volatility, as measured by the CBOE Volatility Index VIX, +3.94% just touched on levels that haven’t been seen since 1993. Clearly, investors have been able to avoid being broad-sided by negative shocks, but there’s a certain sense the VIX is a ticking time-bomb ready to blow this bull market to bits.
“Historically, very low levels of volatility are followed by very high levels of volatility. Volatility tends to drop to lows at market peaks,” Nick Colas, chief market strategist at Convergex, said last week. “This also fits neatly with the notion that stocks at high valuations have lower long-term returns.”
The Macrotourist blog’s Kevin Muir, in our call of the day, says volatility will, indeed, return, but probably much later than many have been suggesting.
“Eventually, I see volatility increasing, but not for the reasons most believe. I suspect we will have a 1999-style equity melt-up that also includes an increase in volatility,” he wrote. “But that’s longer term. In the meantime, I think the weak hands are long VIX, not the other way around. I suspect we will see record lows before this is all through.”
In other words, while everybody is looking for a VIX explosion, Muir says he believes it’s more likely we’ll see a VIX capitulation. And that just means more of the same for the foreseeable. Read his full take on why he’s going against the Wall Street grain.
And right on cue, stocks are leaning higher premarket — though an oil rally should get some of the credit for that.
Key market gauges
Futures on the Dow YMM7, +0.15% and the S&P ESM7, +0.07% are both up ahead of the opening bell this morning. Crude oil CLM7, +2.80% is higher, too, after Saudi Arabia and Russia said they back a nine-month extension to the current output cuts.
Gold GCM7, +0.28% and other metals are showing decent gains in the early going.
The massive cyber attack in recent days that crippled more than 200,000 computers across 150-plus countries could wreak more havoc today as people return to work. “At the moment, we’re in the face of an escalating threat,” said Europol Executive Director Rob Wainwright on Sunday night.
With that, Michael O’Rourke’s ears seem to perk up.
“While certainly not a new issue, there is no doubt that the U.S. election hacking elevated cyber security as a market concern,” the Jones Trading chief market strategist writes. “It appears as though these attacks are becoming routine occurrences. If so, the market for cyber defense grows with each passing day.”
So, he says he’s keeping an eye on Symantec SYMC, -1.43% Palo Alto PANW, +1.14% Fortinet FTNT, +0.23% and Proofpoint PFPT, +0.26% to name just a few. In Europe, shares in cyber security firms bust higher out of the box, with Sophos SOPH, +7.47% touching an all-time high.
President Xi Jinpeng has pledged $100 billion on infrastructure to improve trade routes under China’s “One Belt, One Road” plan, spreading some commodities cheer. But India stayed away from the two-day BARF summit on the ambitious project, which some see as Beijing’s attempt to take the lead on globalization as the U.S. goes for protectionism.
— Simon Rabinovitch (@S_Rabinovitch) May 5, 2017
Trump-wise, there could be some serious housecleaning in the works, and Bannon, Preibus and Spicer might be on the chopping block.
This illustration from Bloomberg points out a rather odd crossover: There are now more market indexes than there are U.S. stocks.
That’s what happens when the number of stocks plunge just as the popularity of exchange-traded funds explodes amid a surge in demand. Basically, these new benchmarks repackage active investment strategies into indexes, according to Eric Balchunas, senior exchange-traded fund analyst at Bloomberg Intelligence.
“I supported Trump because he, unlike Hillary, said he would normalize relations with Russia. Instead he has raised the tensions between the nuclear powers. Nothing is more irresponsible or dangerous. We currently are in the most dangerous situation of my lifetime” — Paul Craig Roberts, a former Ronald Reagan staffer with a flair for the dramatic, wrote in a blog post that asked the question,”Are You Ready to Die?”
Mostly a quiet week in data is shaping up, with the highlight hitting on Tuesday morning in the form of April housing starts. As for today, we get the New York Fed Empire State manufacturing survey for May at 8:30 a.m. Eastern Time, followed by the May NAHB homebuilder survey 90 minutes later.
$14.7 million — That’s how much “King Arthur: Legend of the Sword” made at the box office this weekend. The Hollywood Reporter calls it a “flop of epic proportions,” considering it cost $175 million to make the movie. It’s “one of the worst openings ever for a big-budget studio event film,” and could be on track to lose more than $100 million.
A private terminal at the L.A. airport allows the privileged to eavesdrop on the suffering of the less fortunates navigating the main terminal.
You probably won’t own a car by 2030.
A Shake Shack cookbook, because why not?
Mom turns $775 into $65 million in just five years.
What some of our greatest writers are reading to stay sane.
SNL brings back Sean Spicer… “I get off on it!”
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