Despite bearish doomsayer predictions of disaster, the U.S. stock market continues to notch new all-time highs. At the same time, volatility (VIX) continues to hit all-time lows.
Can this environment persist?
Yes.
“What we’re showing you here in this chart is the market’s expectations of future volatility,” says Hedgeye CEO Keith McCullough in this recent clip from The Macro Show. “Guess what, volatility has never been lower.”
What could disrupt this placid market environment? For starters, growth in the U.S. economy and corporate earnings would need to slow. As McCullough points out in the video above, the data is accelerating.
- Q2 Earnings Season: It's early, but 59 of the S&P 500’s companies have reported aggregate SALES and EARNINGS growth of +4.8% and +9.4%, respectively, on a year-over-year basis.
- GDP: In the first quarter of 2015, year-over-year GDP peaked at 3.3% fell to 1.3% by the second quarter of 2016 then has since rebounded to 2.1% in the first quarter of 2017. Furthermore, we think the U.S. economy continues to heat up throughout 2017.
BOTTOM LINE: Expect this regime of all-time lows in volatility and all-time highs in stocks to persist, even if it’s occasionally disrupted by pullbacks. In other words, those pullbacks are great opportunities to buy the dip.