Investors counting on the corporate earnings season to provide a major stock lift were likely disappointed when Wall Street lurched up and down this past week.
There is, in fact, a strong possibility that the market has been driven too high by investor overconfidence.
A key measure of investor anxiety, the Chicago Board Options Exchange's volatility index, had been trading in the 20s. But on Thursday, it dipped to 19.63 -- a 52-week low.
Many believe a reading below 20 may indicate investor overconfidence that makes the market vulnerable to future declines. Put another way, it suggests investors may have bid stocks too high by overestimating how strong the economic recovery will be.
The last time the VIX dipped below 20 was last April, at the end of the last bull run before stocks slid to multiyear lows in October. On Thursday, the Dow Jones industrials fell nearly 170 points from an intraday gain of 87 points due, in part, to traders' reaction to the VIX.
"The VIX falling below 20 doesn't happen very often, and that's usually a sign of a market that's topping," said Brian Pears, head equity trader at Victory Capital Management. "A lot of people, particularly short-term traders, take this as a signal that things could become rougher."
Analysts stress that the VIX is just one of many gauges of a market's future direction. Still, there were other signs this past week that Wall Street's stunning rally since mid-March could stall, if not backtrack, despite better-than-expected second quarter earnings.
On Monday, for instance, investors shrugged off a strong outlook from 3M, sending stocks lower as they focused on downbeat profits reports from Merck and Lexmark International. Tuesday also was headed for a loss before news that two of Saddam Hussein's sons were killed lifted the market.
And on Thursday, stocks slid on the VIX reading despite a surprising drop in new jobless claims.
"This is a market that's into the fifth month of the bull. It's tired," said Larry Wachtel, market analyst at Prudential Securities.
He noted that the Dow has climbed more than 20 percent and the NASDAQ has gained more than 30 percent since stocks hit a low on March 11.
"You can't make a move of this nature and then continue upward," he said.
In addition, surging bond yields might be luring short-term traders out of the stock market, while murky corporate outlooks that cast doubt on the strength of the recovery could be prompting others to cash in stock gains.
Analysts say that could forebode more pullbacks, particularly during the quieter summer months when there are few catalysts outside of the earnings season to push the market higher.
"Our stance is that even good earnings for the second quarter are not enough," said John Caldwell, chief equity strategist for McDonald Financial Group, part of Cleveland-based KeyCorp.
"What would get us more excited would be more upward revisions to [outlooks]," he added. "You almost need better-than-expected third and fourth quarter estimates to push the market higher."
For the week, the Dow Jones industrials rose 96.42, or 1.1 percent. They closed Friday at 9,284.57.
The NASDAQ composite index had a gain of 22.20, or 1.3 percent, closing at 1,730.70 on Friday. The Standard & Poor's 500 index advanced 5.36, or 0.5 percent, finishing at 998.68.
For the week, the Russell 2000 index, the barometer of smaller company stocks, rose 4.12, or 0.9 percent, closing at 468.88.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 US-based companies, ended the week at 9,599.36, up 52.70 from the previous week. A year ago, the index was at 8,091.63.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day
Thousands of parents in Singapore are furious after a Cordlife Group Ltd (康盛人生集團), a major operator of cord blood banks in Asia, irreparably damaged their children’s samples through improper handling, with some now pursuing legal action. The ongoing case, one of the worst to hit the largely untested industry, has renewed concerns over companies marketing themselves to anxious parents with mostly unproven assurances. This has implications across the region, given Cordlife’s operations in Hong Kong, Macau, Indonesia, the Philippines and India. The parents paid for years to have their infants’ cord blood stored, with the understanding that the stem cells they contained