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The stock-market storm is coming—but the reason might surprise investors

15 May The stock-market storm is coming—but the reason might surprise investors

via MarketWatch

Critical information for the U.S. trading day

 

In contrast to the complete madness of the world outside, an eerie stillness continues to hang over the stock market. Not that investors are complaining. They just keep riding out cyberattacks, North Korean missile launches, Donald Trump’s [take your pick], and any number of other nerve-rattling developments, while major indexes stubbornly remain in the neighborhood of record highs.

Technically speaking, volatility, as measured by the CBOE Volatility Index VIX, +0.67% just touched on levels that haven’t been seen since 1993. Clearly, investors have been able to avoid being broadsided by negative shocks, but there’s a certain sense the VIX is a ticking time-bomb ready to blow this bull market to bits.

“Historically, very low levels of volatility are followed by very high levels of volatility. Volatility tends to drop to lows at market peaks,” Nick Colas, chief market strategist at Convergex, said last week. “This also fits neatly with the notion that stocks at high valuations have lower long-term returns.”

The Macrotourist blog’s Kevin Muir, in our call of the day, says volatility will, indeed, return, but probably much later than many have been suggesting.

“I see volatility increasing, but not for the reasons most believe. I suspect we will have a 1999-style equity melt-up that also includes an increase in volatility,” he said. “But that’s longer term. Meanwhile, I think the weak hands are long VIX, not the other way around. I suspect we will see record lows before this is all through.”

In other words, while everybody is looking for a VIX explosion, Muir says he believes it’s more likely we’ll see a VIX capitulation. And that just means more of the same for the foreseeable. Read his full take on why he’s going against the Wall Street grain.

And right on cue, stocks are rallying.

Key market gauges

The Dow YMM7, +0.43% and the S&P ESM7, +0.43% are both nicely higher. Crude oil CLM7, +2.78% is gaining ground, too, after Saudi Arabia and Russia said they back a nine-month extension to the current output cuts. The dollar DXY, -0.29% however, is down, with commodity currencies a drag.

Gold GCM7, +0.32% and other metals are showing decent gains in the early half of the day. Asia markets ADOW, +0.33% closed mostly higher, while Europe SXXP, +0.09% is off to a mixed start to the week.

The buzz

The massive cyberattack in recent days that crippled more than 200,000 computers across 150-plus countries could wreak more havoc today as people return to work. “At the moment, we’re in the face of an escalating threat,” said Europol Executive Director Rob Wainwright on Sunday night.

With that, Michael O’Rourke’s ears seem to perk up.

“While certainly not a new issue, there is no doubt that the U.S. election hacking elevated cybersecurity as a market concern,” the JonesTrading chief market strategist writes. “It appears as though these attacks are becoming routine occurrences. If so, the market for cyberdefense grows with each passing day.”

So, he’s keeping an eye on Symantec SYMC, +3.77% Palo Alto PANW, +3.68% Fortinet FTNT, +3.73% and Proofpoint PFPT, +9.28% to name just a few.

In a different corner of the tech world, Amazon’s AMZN, -0.37% Echo Show made a huge splash last week. Here’s what one notable product guy had to say about the latest effort from Jeff Bezos.

Patheon NV PTHN, +33.23% shares are popping after Thermo Fisher TMO, +0.37% said it’s picking up the biopharma services provider in a $7.2 billion deal.

Watch shares in Moody’s, which says it has done a deal to buy Dutch business intelligence Bureau van Dijk for the euro equivalent of $3.27 billion.

President Xi Jinping has pledged $100 billion on infrastructure to improve trade routes under China’s “One Belt, One Road” plan, spreading some commodities cheer. But India stayed away from the two-day BARF summit on the ambitious project, which some see as Beijing’s attempt to take the lead on globalization as the U.S. goes for protectionism.

Trump-wise, there could be some serious housecleaning in the works, and Bannon, Preibus and Spicer might be on the chopping block.

The quote

“I supported Trump because he, unlike Hillary, said he would normalize relations with Russia. Instead he has raised the tensions between the nuclear powers. Nothing is more irresponsible or dangerous. We currently are in the most dangerous situation of my lifetime” — Paul Craig Roberts, a former Ronald Reagan staffer with a flair for the dramatic, wrote in a blog post that asked the question, ”Are You Ready to Die?”

The economy

Mostly a quiet week in data is shaping up, with the highlight hitting on Tuesday morning in the form of April housing starts.

As for Monday, New York Fed Empire State manufacturing survey for May disappointed, posting its first negative reading since President Donald Trump’s election victory in November. Later Monday, May NAHB home-builder survey is due at 10 a.m. Eastern.

The stat

$14.7 million — that’s how much “King Arthur: Legend of the Sword” made at the box office this weekend. The Hollywood Reporter calls it a “flop of epic proportions,” considering it cost $175 million to make. It’s “one of the worst openings ever for a big-budget studio event film,” and could lose more than $100 million.

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