What Stock Investors Are Watching for: Signs of Stability

U.S. stock market turmoil has worried investors who are analyzing the market’s internal indexes for signs of abating.

War, inflation and recession fears have dragged the S&P 500 to its worst first 100 trading days of the year since 1970. With the market rallied over the past week, investors are looking to tracks everything from options bets to investor sentiment surveys to gauge when volatility could end.


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Lindsey Bell, director of markets and currency strategist at Ally Financial, said in a recent note that four of the five major indexes she tracks remain below extremes, suggesting that there is a lot of room for improvement. for the drop. These include:

Market volatility is lower than the previous sell-off

The Cboe Volatility Index, or VIX, is known as Wall Street’s “fear gauge” because it measures the price of S&P 500 options, including those that investors tend to use to protect their investment portfolio. While the index has rallied this year, it is still well below the levels achieved during previous bear markets. “The VIX hasn’t spiked the way it normally would,” said Nancy Tengler, managing director and chief investment officer of Laffer Tengler Investments.

Options traders’ worries are moderate

Another measure of fear in the options market has increased, but not to extremes. According to FactSet, the ratio of puts to calls recently hit 1.33, still well below the highs of 1.7 reached at the end of 2018 and 1.8 reached at the beginning of 2020, according to FactSet. FactSet. Puts give the right to sell shares at a specific price, on a set date, and can be used to profit from a market decline. Calls give the right to buy shares on a set date. Mark Hackett, head of investment research at Nationwide Investment Management Group, said the ratio could help determine the timing of investors’ investments, which could mark the end of a slump. When it gets to the extreme, it’s a sign that “Okay, today is the day people give up,” he said.

Many stocks are still trading above the 200-day moving average

Traders track the rolling average of a stock’s performance over 200 days as a means of determining how the latest price change compares to long-term trends. When there are few stocks trading above average, it shows that investors are increasingly pessimistic. Currently, about 30% of stocks are above that moving average, still well above levels achieved during prior market stress, suggesting more downside potential, according to Ally.

Bond spreads remain relatively tight

Some on Wall Street watch the extra yields, or spreads, that investors demand from holding corporate bonds instead of super-safe Treasuries, tending to rise as they fear recession and default. Dan Morgan, a senior portfolio manager at Synovus, said: Trust Co.

Investor’s outlook: Frustration

Wall Street typically tracks individual investor sentiment, believing that when they’re most pessimistic it’s time to buy — and they’ve been pretty down lately. Many people use the American Association of Individual Investors’ weekly survey, which asks investors to predict where the market is going in the next six months. According to Ally, when the bears surpass the bulls by more than 30 percentage points, it is a sign that the worst of the decline is over.

Write to Hardika Singh at hardika.singh@wsj.com

The sell-off has beaten major US stock indexes recently, although the S&P 500 broke a seven-week losing streak on Friday. WSJ’s Caitlin McCabe looks at some of the key drivers behind market volatility. Photo: John Minchillo / Associated Press

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Edmund DeMarche

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