It seems the markets are beginning to show signs of exhaustion after consistently running to newer and newer all time highs since the 2016 election. The S&P 500 lost -0.7% yesterday as energies and utilities stocks slid. But the biggest takeaway here is this: we were down ONLY -0.7%! This clearly is not a large amount when compared to typical declines or rallies we would regularly see only a few years ago, but as some traders have pointed out, the S&P’s value is so far above where is was only a few years ago that a relatively small percentage move is still worth a lot.
Perhaps this is a fair argument, but overall volatility has clearly been in a slump since the election. With the exception of election night itself, we have consistently seen the VIX slump ever lower. Clearly we are overdue for a significant spike, but the requisite catalysts seem harder and harder to come by. Overall, global markets appear to be quite confident in the future, even though the “Doomsday Clock” has now reportedly reached 2 minutes to midnight. Even Bitcoin has slumped into a relatively narrow range, apparently constrained by the mutual impact of added regulation and increased skepticism on the actions of some of its biggest exchanges, such as Bitfinex. Going forwards, it seems that the indexes will face stronger headwinds as the effects of the new US tax bill and the ultimate resolution of the next potential government shutdown weigh in.