The bull market in equities seems to be continuing and new records are being broken day by day. Not only in Europe, but especially in the United States, bulls are making themselves known, pushing the indexes to higher and higher levels.
The Dow and S&P 500 hit new records on Friday, climbing above 35550 and 4460 points, respectively, and were on track for a second straight week of gains as investors welcomed strong financial results, upbeat labor market data and the Senate's passage of an infrastructure bill. On the corporate front, Walt Disney Company's quarterly earnings beat expectations as its streaming services gained more customers than expected and theme parks returned to profitability.
Meanwhile, Airbnb signaled weak results in the current quarter due to the Delta variant of the coronavirus. Activision Blizzard, on the other hand, rose after Citigroup raised its recommendation on the game publisher's stock to "buy" from "neutral." Investors are now awaiting the minutes of the Fed's latest meeting for clues on economic policy after mixed inflation data was released earlier in the week. So far this week, the Dow and S&P 500 have gained 0.8 percent and 0.5 percent, respectively, while the Nasdaq has lost 0.1 percent.
It is also worth noting that the contract for the so-called fear index, the VIX, fell to its lowest level since mid-June at 16.50 points. This, in turn, may mean that investors are not expecting events that could cause panic on the stock market or be events that increase the risk for investments in shares. Moreover, volatility also seems to be decreasing in the currency market. For the EUR/USD pair, the one-week implied volatility seems to have fallen to 3.80 percent, the lowest level since February 2020, extending this week's strong slide, according to Bloomberg data. The decline comes at a time of small ranges of volatility in the spot market, where Thursday's 24 pip range on EUR/USD was the lowest since 2019, if holidays are excluded.
However, it seems that volatility is a sinusoidal measure, so a period of elevated volatility may follow a period of low volatility. The upcoming events that could be important for both the stock market and the dollar are the Jackson Hole symposium on August 26-28 and September data from the US labor market. This is when we will find out whether the Fed will start tapering its asset purchase program later this year, which could be important for both the USD and equities.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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