As stocks snap a three-day losing streak and return to climbing the proverbial wall of worry, the VIX is signaling the most complacency in stocks since just prior to the pandemic.
It may not signal the all-clear, the low VIX reading does underscore the powerful rally U.S. large cap equities have mounted this year.
Complacency Hits Lowest Level Since January 2020 — Finance Yahoo Friday
And what happened after January 2020? The stock market dropped a third in six weeks. One can say the pandemic was an outlier but this speaks to the overall danger of thinking all is clear. In fact internal indicators peaked back in February 2023.
The most reliable indicator, the NYSE advance decline line, peaked in February. It has not seen that level since and peaked again about June 15. While the story above cites a powerful rally this year, internals also peaked in February. 75% of the NASD stocks, that index has been the best performer, or rather eight of its members have been, were over their 50 day moving average then. At our mid-June high, 60% did so and as I write the figure has fallen to 50%. February to today the SPX has dropped from 80%, the high, to 50% today. This column has limited space but see professorelam.typepad.com/markets for more charts. Investors are pouring into small cap stocks but the S&P mid cap index is down 1,320-1,180 this year.
More qualitative indicators abound. The Transports lead the market. Fed Ex is removing 20 planes from its fleet due to lower volume. Net income was half the amount recorded a year ago. But who cares, the stock price is up! The Transportation Index has dropped from 15,600 to 14,600 in this February to today slide.
You will never see a brokerage firm of any size suggesting you take your stock gains and retreat to the safety of T Bills. But in a rising interest rate market that is what you should do. Yes the headlines are all about the FED but the reality is the 39 years interest rate chart. Rates bottomed in March 2020 ending a 39 year slide from 1981. It matters not what Jerome Powell can or wants to do. Longer term higher rates lie ahead.
People are frisky and prone to risk taking amid positive social mood. Sadly the Titan sub tragedy is a perfect example of throwing caution to the waves. Price of real estate and automobiles are a first derivative of stock market mania, and both are setting records, a fitting ode to this mid June peak. Casa Encantada in swanky Bel Air, CA, vies for the most expensive house ever priced at $250M! Porsche debuts a refreshed Cayenne SUV. Base price starts around $80k but those desiring conspicuous consumption can opt for the Turbo GT at near $200,000!
Just driving around today I was struck by the For Lease signs on commercial buildings and strip centers. Clues abound, take note!
A Wall Street Maxim is that no one rings a bell at the bottom. Hey, they don’t at the top either!
