JPMorgan highlighted that market volatility is “artificially low,” as the S&P 500 VIX (VIX) recently dropped to 16, marking its lowest level in more than 17 months even though markets remain unsure about ongoing inflation concerns and future Federal Reserve rate decisions.
The VIX hit its lowest point last week since November 16, 2021 and JPMorgan noted that this is unusual given the backdrop of rising interest rates, tightening of financial conditions, ongoing macro risks, and elevated geopolitical tensions.
In a note to its investors, the bank stated: “We believe the reasons for low volatility are technical in nature with the market dominated by option sellers. Selling of options forces intraday reversion, leaving the market price virtually unchanged many days. This in turn drives buying of stocks by funds that mechanically increase exposure when volatility declines.”
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