When you come to a fork in the road, take it, Yogi Berra once quipped. The stock market has other ideas.
After rallying 7% to start the year, the
S&P 500 index
can’t decide what to do. Instead, it fell a mere 0.1% this past week, a move small enough that you could have gone on vacation and returned a week later to find that not much had changed, not really.
But one week’s move doesn’t really do justice to how quiet April has been. Three weeks into the month, the S&P 500 has risen just 0.6%, which, if the trend holds, would be its smallest monthly change since May 2022 and only the fourth time in the past five years that the index moved less than 1% in either direction in a month.
What’s more, the
Nasdaq 100
has had a range of just 2.9 percentage points so far in April, which would be just the sixth time since 1986 that the index has been in a range of less than three percentage points.
“We think it speaks to the uncertainty across the market,” writes Mizuho Securities’ Daniel O’Regan.
And there is a lot of uncertainty. There’s uncertainty about when the Federal Reserve might stop raising interest rates and start cutting. There’s uncertainty about the debt ceiling and when it will be raised. There’s uncertainty about whether the economy is headed for a recession or not. Most of these are binary bets, a choice between something good and something bad, making it difficult to play the outcomes with any nuance. Perhaps that’s enough to make everyone sit on their hands until some of the uncertainty is resolved.
Of course, the market’s hesitation might just be an artifact of earnings season. Not that the season has been bad—it has actually been the best start to one since the first quarter of 2022, according to Credit Suisse. Instead, stocks are responding almost entirely to company-specific news, causing some to jump, others to tumble, and for their moves to ultimately cancel out one another. For every
AT&T
(ticker: T) or
Tesla
(TSLA), which tumbled 10% and 9.8%, respectively, this past Thursday following their releases, there was a company such as
Snap-On
(SNA) or
Abbott Laboratories
(ABT)—which popped 8% and 7.8% after reporting this past week—to offset it. Sometimes it really is a market of stocks rather than just a stock market.
The calm has been reflected in the market’s actual swings—realized volatility over the past 30 days has been just 9.4%—and in investor expectations of future ones, with the
Cboe Volatility Index,
or VIX, hitting 16.46 this past week, its lowest reading since 2021. The low level of implied volatility suggests that investors don’t see much need to buy protection against a stock market decline, something they could come to regret.
“Neither reading in themselves gives cause for alarm, but it is fair to say that recent market behavior suggests that few market participants are well-positioned if another bout of volatility were to break upon us unexpectedly,” writes Michael Shaoul, CEO of Marketfield Asset Management.
That calm could end sooner, rather than later. For one, the VVIX Index—basically, the VIX of the VIX—has stopped falling, even though the VIX itself is trading near its lowest level in 17 months. And the VIX has fallen for five straight weeks, dropping 34% over that period. There have been 10 such declines since the March 2020 lows, and a spike in volatility usually followed, observes CappThesis founder Frank Cappelleri. “One doesn’t need to be a vol trader for this to matter, of course,” he writes. “A bounce in the VIX most likely would coincide with a decline in equities.”
What the market does on any day, week, or month doesn’t really matter all that much. Most of us, most of the time, are thinking longer than that. And that’s where this nothing market starts to get concerning.
The S&P 500 has fallen 1% over the past two years, a period that began around when inflation rose above 3% for the first time since 2011, observes Deutsche Bank’s Jim Reid. And the concern has to be that the index will continue to return nothing—or next to nothing—over the next five, 10, or 15 years.
It’s a “real doom-and-gloom scenario,” Reid writes.
It’s one that has happened before, beginning in the late 1960s when inflation, which had been thought to be dead, proved to be very much alive. It was also devastating for investors. During the second half of 1982, the S&P 500 was at roughly the same level in price terms as it was at the end of 1968, Reid writes, while investors would have lost 27% over that stretch, including dividends and adjusting for inflation.
“So we’ve had two years of the S&P 500 going nowhere but poor real returns,” Reid writes. “Could the S&P 500 still be at around 4150 in 2035? It’s unlikely, but there’s a historical precedent from a period not too dissimilar to today.”
Stick a fork in it.
Write to Ben Levisohn at Ben.Levisohn@barrons.com
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