Central Bankers
“‘Nothing bad is allowed to happen’ is still the mantra,” said Michael Block, chief equity strategist at Rhino Trading Partners LLC in New York. “The minutes were mildly dovish, the ECB is on an inevitable crash course with quantitative easing, and the Germans are blinking hard on playing tough on Greek austerity.”
Investors were betting on a smoother ride for equities in 2015 before today’s better-than-expected economic data and the release of December Fed minutes. Prices for contracts tied to levels of expected stock turbulence in months through September show traders expect this month’s swings to calm down as the year progresses.
The Chicago Board Options Exchange Volatility Index, a measure of demand for options on the S&P 500, dropped 8.2 percent to 17.72 today after rising six times in the previous eight days. At 21.12 on Jan. 6, the gauge was higher than all nine of its monthly futures contracts with expiration dates ranging from Jan. 21 to Sept. 16.
VIX Slope
Contracts expiring Jan. 21 finished yesterday at 18.85, while those expiring in February closed at 18.73 and March futures ended at 18.83. The slope in prices is a sign investors believe swings in underlying stocks will smooth out.
The five-day, 4.2 percent slump in the S&P 500 came just 13 days after the index dropped 5 percent between Dec. 5 and Dec. 16. The span between the two dips was the shortest since two retreats of more than 4 percent in late 2011, data compiled by Bloomberg show. Since 2009, retreats of this magnitude have happened every 51 days, on average.
“More than anything, this is a reversal from a substantial correction over the past few days and the idea that U.S. growth may not be as bad as the loss indicated,” Krishna Memani, the New York-based chief investment officer at Oppenheimer Funds Inc., said by phone.