Despite the all-time highs in the S&P 500, volatility expectations remain elevated.
Yesterday, we mentioned that despite the melt-up occurring in the Nasdaq segment of the stock market, the Nasdaq Volatility Index (VXN) has actually remained relatively elevated — even historically so. As we stated, “this is unusual behavior for a market that generally declines when stocks move higher.” Well, this unusual behavior is not unique to the Nasdaq. The S&P 500 Volatility Index (VIX) has also remained relatively elevated despite the all-time highs in the S&P 500 (SPX).
In fact, yesterday saw the VIX close at 26.12, its first close above 25 for any day when the S&P 500 closed at a 52-week high since March 24, 2000 — the day, incidentally, which marked the very top of the post-1982 secular bull market in the large-cap index.
As the chart shows, the only other time the VIX closed higher than 25 coincident with a 52-week high in the SPX was was a string of incidents from January 1999-March 2000. So is the current signal another top warning? As we mentioned in the post yesterday, this signal isn’t necessarily a death knell for the rally. However, it would not surprise us if this data point was an early warning signal in the buildup to some variation of a market top. We will at least reiterate that, based on our research, the standoff between buoyant stocks and volatility is not an ideal condition for stock investors in the longer-term.
How much “stock” are we putting into this data point? How is it impacting out investment posture? If you’re interested in an “all-access” pass to all of our charts, research — and investment moves — please check out our site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!
Disclaimer: JLFMI’s actual investment decisions are based on our proprietary models. The conclusions based on the study in this letter may or may not be consistent with JLFMI’s actual investment posture at any given time. Additionally, the commentary provided here is for informational purposes only and should not be taken as a recommendation to invest in any specific securities or according to any specific methodologies. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.