Wall Street’s ‘Fear Guage’ Reaches 25 Year Low

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Robert Donachie Capitol Hill and Health Care Reporter

Wall Street’s fear gauge, a measure of expected stock volatility, hit its lowest level Monday in nearly 25 years.

The CBOE Volatility Index fell below 9.7 Monday, down over 7 percent on the day. CBOE’s position Monday marks its lowest level on a closing basis since December 1993. The index historically hovers around 20 and has only closed in the single digits on 10 other occasions, MarketWatch reports.

CBOE is calculated based on the prices of stock options 30 days in the future on the S&P 500. One of the interesting things about the index’ retreat Monday is that it occurred with a simultaneous drop in the S&P. The two typically have an inverse relationship, meaning when one goes up the other ticks down, The Wall Street Journal reports.

The two indexes have historically moved in opposite directions 80 percent of the time. The relationship is entering what appears to be an era of abrupt change. In 2017, the index and the S&P have moved in the same direction three times. The recent trend is causing some investors to wonder if it is still an accurate measure of volatility, The Wall Street Journal reports.

The index’ level has some thinking investors are too complicit with the state of the market, not making big plays because their portfolios are already performing at peak levels.

The U.S. stock market has been on a tear since then-candidate Donald Trump defeated former Secretary of State Hillary Clinton in the presidential election, setting records on a near weekly basis and adding hundreds of billions of dollars in market capitalization. (RELATED: NASDAQ Tops 6K For First Time Ever)

The market’s stellar performance since November is undoubtedly contributing to investor optimism. Another reason Wall Street is getting cheery is because tax reform, specifically corporate tax reform, looks more viable than ever. Trump was adamant that repealing Obamacare come before tax and regulatory reform. After House leadership passed the American Health Care Act Thursday, tax reform is making headway. (RELATED: Ryan Already Looking To Pivot To Tax Reform)

Some financial experts feared the French election could send the market into a spiral. Investors feared a populist movement in France championed by Marie La Pen might spread throughout Europe if she defeated billionaire hedge fund manager Emmanuel Macron in France’s presidential election. Macron secured the victory Sunday, working to ease investor concerns Monday.

The NASDAQ and S&P 500 briefly grazed intraday trading records Monday. The Dow Jones Industrial was trading near its opening Monday afternoon.

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