Stocks in Summer Slumber as VIX Tumbles Most Since 2012

The U.S. stock market has fallen back to sleep.

Price swings as measured by the Chicago Board Options Exchange Volatility Index (VIX) have fallen 29 percent in August, poised for the biggest monthly drop since June 2012. The VIX is less than three points from a record low. Trading volume over the past four days has been the slowest since at least 2008, excluding the end of December, with a daily average of 4.4 billion shares changing hands, data compiled by Bloomberg show.

While stocks were jolted last month by violence across Ukraine and the Middle East and concern interest rates are poised to rise, tranquility has returned with the Standard & Poor’s 500 Index creeping back to an all-time high. The equity benchmark is little changed over the past three days after a rally that pushed it over 2,000 for the first time.

“Fear has dissipated so quickly,” Stephen Solaka, a managing partner at Los Angeles-based investment firm Belmont Capital Group, said by phone. “We snapped back pretty quickly from the selloff in late July and early August. Now, we’re just sort of treading water.”

The VIX, as the benchmark of U.S. derivatives prices is known, is up 5.1 percent this week to 12.05 as the rally in equities lost momentum. It reached 11.47 on Aug. 22, a one-month low.

Quantitative Easing

U.S. stocks have rallied as the strengthening economy and accommodative monetary policy put a floor under declines spurred by crises from Argentina to Ukraine. Speculation is increasing that the European Central Bank will consider quantitative easing, which could involve broad-based asset purchases.

About 506,000 options on the S&P 500 changed hands on Aug. 27, the lowest level since May. That’s down about 70 percent since the start of August, when financial stress in Argentina and Portugal led traders to buy protection for their stock holdings. Volume yesterday was about 663,700 contracts.

“We flipped from complacency to fear in the market, but the market has now turned back around to complacency,” Steve Sosnick, an equity risk manager at Timber Hill LLC, the market-making unit of Greenwich, Connecticut-based Interactive Brokers Group Inc., said by phone.

Market Volume

The S&P 500 hasn’t closed up or down more than 1 percent in almost three weeks. U.S. stock-market volume averaged 5.3 billion contracts a day in August, compared with a mean of 6.3 billion in the first seven months, data compiled by Bloomberg show.

Depressed trading could be a sign that investors are losing interest in a bull market that’s seen the value of the S&P 500 (SPX) almost triple since 2009, according to Randy Bateman, who oversees $2.8 billion as chief investment officer of Columbus, Ohio-based Huntington Asset Advisors.

“Volumes have come down pretty dramatically, which I don’t think is a good sign,” Bateman said by phone. “We’re still not seeing the individual investors participate very much.”

The market is entering a time of year that has historically seen wider swings. The S&P 500 has moved 4.5 percent on average in September, compared to a gain or drop of 3.4 percent in all months, according to data compiled by Bloomberg from the past 20 years.

Investors have boosted their ownership of VIX calls, which often rise in value when stocks tumble, as a way to offset a possible slump in the market. About 4.2 options betting on a rise in the VIX are held for every put, the most since 2007.

The two most-owned contracts on the gauge are calls expiring in September with strike prices of 20 and 19. The Federal Reserve is scheduled to begin a two-day meeting Sept. 16, when it will decide on the pace for reducing monetary stimulus.

“There’s enough doubters out there that it’s easier for some type of negative news to materialize into a spike in volatility,” Max Breier, a senior equity derivatives trader at BMO Capital Markets Corp. in New York, said by phone. “Cooler heads end up prevailing in almost every instance.”

To contact the reporter on this story: Callie Bost in New York at cbost2@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland

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