US stock prices have driven to record highs, and VIX contracts are telling us that the professional investors are buying insurance against market volatility that could erupt at any time as the valuations are stretched a bit now.
The hedging can be seen in futures on the CBOE Volatility Index (VIX) expiring in March and beyond, which are trading above the index’s current marks. The VIX is dubbed Wall Street’s fear gauge indicating some ‘risk mitigation’ in here.
Uncertainty has the VIX is just below 22, hanging just above its long-term average near 20, even as the S&P 500, DJIA, NAS Comp and Russell 2000 have rallied to record highs this wk.
There have been rallies in domestic shares of banks and other companies that would benefit most from the economic reopening of the US.
For a broad re-opening to happen this Summer, virus vaccinations need to be completed for most priority groups in Q-2 and access to the general population established by the end of June, said the biotech analyst at Morgan Stanley.
With that in focus, savvy investors are taking advantage of high volatility expectations and prudently preparing for possible turbulence down the road.
Over 15.1-M people have received at least 1 dose of the COVID-19 vaccine in the United States so far and over 100-M are expected by mid-February according to sources.
Back to the market
I mentioned valuations above to point out that the S&P 500 Index is at historically high levels on a P/E basis and some analysts are cautious about possible overbought conditions. Overbought in the SPY is not flashing in our filter, so a long as the trend is North play prudently.
Have a healthy weekend, Keep the Faith!