Tags: Stock | market | volatility | risk

Stock Market Volatility Plunges; Some Worry About Risk

By Dan Weil   |   Friday, 23 May 2014 09:53 AM

The main indicator of stock market volatility has plummeted in recent weeks, and some experts worry that investors are getting a little too comfortable.

The Chicago Board Options Exchange Volatility Index (VIX), which measures expected volatility for the S&P 500 index, touched a 14-month low of 11.68 Thursday before closing at 12.03.

So what has lessened investors' fear?

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The fact that the S&P 500 and Dow Jones Industrial Average stand within 1 percent of their record highs is one factor, traders tell The Wall Street Journal.

Low interest rates, continuing moderate U.S. economic growth and the Federal Reserve's tapering of its quantitative easing are playing a role too, they say.

But some experts see danger. "Volatility in the markets right now is unusually low," New York Federal Reserve Bank President William Dudley said Tuesday. That "makes me a little nervous," because of potential shocks, he said.

"The market's been lulled to sleep," J.J. Kinahan, chief strategist at TD Ameritrade, tells The Journal. "At the end of the day, [stocks] haven't really gone anywhere for most of this year."

Don Rissmiller, chief economist at Strategas Research Partners, agrees. "We've been lulled into this state of complacency. We've really forced volatility down so much that the only way it can go is up," he tells The Journal.

Volatility will only return on a sustained basis if two crises occur virtually simultaneously, says Russell Rhoads, senior instructor at the Options Institute at CBOE.

"We just haven't had that double whammy," he tells MarketWatch. "The smart guys aren't necessarily panicking at small selloffs, and since 2013 they've been right."

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