Since December 3, the S&P 500 has experienced a daily gain or loss of 1% or more only four times. On an intraday basis - measuring the difference between the high and low price - the index has moved 1% or more only nine times, or less than 20% of the 48 consecutive days measured.
The Russell 3000, which includes a broader range of companies, has had a similar lack of volatility in its daily price changes. It has been somewhat more volatile on an intraday basis, but for essential purposes, the index has been sailing on calm waters.
Nobody is complaining, however. Both the S&P 500 and the Russell 3000 have appreciated by approximately 8% since early December. The upward price trend and lack of market gyrations help explain why our and others' sentiment surveys are saying both individual and institutional investors are bullish.
My cracked crystal ball isn't giving any guidance on how long the good times will continue, but I can tell that volatility will return. It's not a question of if; it's a matter of when. Stocks provide a long-term return of 9.9% annually because they cause you to reach for a package of Rolaids more often than you would like to. Furthermore, I don't need to remind you that many risks continue to exist, including a lack of jobs, a weak housing market and rising commodity prices.
The key in a market like this is not to get complacent. Enjoy the gains - but monitor your holdings for excessive valuations, negative business trends and weakening financials. At the same time, be selective about any new stocks you do buy. Keep looking for the true bargains. And if you've missed a big run in an otherwise attractive stock, just remember that there are several thousand other stocks to choose from.
ANOTHER SIGN OF LOW VOLATILITY
Many traders look to the CBOE's Market Volatility Index (VIX) to assess the level of fear or complacency. The VIX measures the implied or expected volatility of S&P 500 options over the next 30 days. In other words, it shows how much volatility is priced into options for a given day.
The VIX closed today at 16.09, a level equivalent to where it was trading during the first half of 2007. This suggests that traders are not expecting volatility to return within the foreseeable future. Whether traders are correct with their assessment or are being lulled into a false sense of calm is a discussion for another day. The simple fact, however, is that the VIX is another sign that the collective market's mood is quite good right now.
THE WEEK AHEAD
Approximately 50 members of the S&P 500 will release earnings results. Among the more notable reports in this group will be from Dell (DELL) on Tuesday, John Deere (DE) and Comcast (CMCSA) on Wednesday and Apache (APA) on Thursday.
Several economic reports will be published on Tuesday morning: January retail sales, the February Empire State Manufacturing Survey, January import and export prices, the February National Association of Home Builders (NAHB) housing market index, and December business inventories. Wednesday will feature January housing starts and building permits, the January Producer Price Index (PPI), January industrial production and capacity utilization and the minutes from the January Federal Reserve meeting. The January Consumer Price Index (CPI), the January leading indicators index and the February Philadelphia Federal Reserve manufacturing survey will be published on Thursday. Economists will be able to catch their breath on Friday with no data scheduled for release.
Three Federal Reserve officials will make public appearances. New York Federal Reserve Bank President William Dudley will speak on Monday, Cleveland Federal Reserve Bank President Sandra Pianalto will speak on Tuesday, and Chicago Federal Reserve Bank President Charles Evans will speak on Thursday.
February options contracts will expire on Friday.