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Financials Show U.S. Stock Calm Is Deceiving: Chart of the Day

Feb. 29 (Bloomberg) -- Investors are less immune to the risks in U.S. stocks than a decline in the market’s volatility would indicate, according to Nicholas Colas, ConvergEx Group’s chief market strategist.

The CHART OF THE DAY shows how Colas reached his conclusion in a report yesterday: by looking at implied volatility, or the potential stock-price swings, built into options on the shares of companies in the Dow Jones Industrial Average.

Financial stocks in the Dow industrials -- American Express Co., Bank of America Corp., JPMorgan Chase & Co. and Travelers Cos. -- have failed to keep pace as a group with a broader decline in implied volatility.

The chart illustrates the relationship by comparing the average reading for the four stocks with a similar figure for the 30 Dow industrials. The latter gauge fell within the past week to its lowest level since May.

“People aren’t giving the financials a pass,” Colas said yesterday in an interview. The disparity between the industry group and the Dow average shows stocks are poised for “a slow grind higher,” the New York-based strategist said, even though the broader easing of volatility suggests otherwise.

The Chicago Board Options Exchange Volatility Index, or the VIX, fell on Feb. 23 to its lowest level since July. The earlier low in the so-called fear gauge preceded a slump that sent the Standard & Poor’s 500 Index down as much as 18 percent.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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