Wall Street’s VIX fell to 14.95, its lowest since February

Wall Street’s top volatility index dropped to its lowest intraday level in five months on Thursday, as U.S. stocks pushed toward new highs following the release of better-than-expected employment numbers.

The Cboe Volatility Index, or VIX, fell nearly half a point from its previous closing value, hitting 14.95 during trading hours before slightly recovering to close near 15, according to data from Cboe.

The VIX is closely watched as a 30-day projection of price fluctuations in the S&P 500, and Thursday’s dip shows that traders betting on near-term turbulence are being forced to reconsider.

A segment of the market, known as volatility buyers, had been positioned for sharp drops in equities or an uptick in instability. That trade isn’t working anymore. As stocks move up with little resistance, some of these traders are pulling back from those positions and taking the loss.

Meanwhile, the actual price swings being recorded in the market have become even smaller than the implied volatility figure suggests. One-month realized volatility on the S&P 500 has now fallen to 6.9%, putting it far below the VIX and proving just how flat price action has been in recent weeks.

Despite the upbeat stock performance, some market analysts were surprised the VIX didn’t fall even further given how calm actual trading conditions have become.

Thin August trading ahead could change the mood fast

But not everyone sees this low-volatility phase lasting. Historically, the VIX tends to rebound in August, often tracking with a seasonal dip in stock performance. Last year, on August 5, worries surrounding the breakdown of yen carry trades pushed the VIX to 66, a number not seen since the height of the COVID-19 crisis. That spike happened fast, jumping from a five-year average of 20 to more than triple the norm.

Amy added that part of the problem in August is liquidity. With many senior traders and fund managers on vacation, volumes thin out. That low activity level can leave the market vulnerable to sharp price moves, even on limited news. She referred to this as a “liquidity vacuum,” and it’s a risk Wall Street watches closely every summer.

Despite the growing calm, equities kept inching higher on Thursday. The S&P 500 ended the session up by 0.1%, while the Nasdaq Composite rose 0.3%. Both indexes reached new intraday all-time highs earlier in the day, boosted in part by strong second-quarter earnings from Alphabet, whose shares gained 1% after the report. Alphabet, the parent company of Google, delivered better-than-expected results across both revenue and profits, giving a much-needed lift to tech stocks.

But it wasn’t all green across the board. The Dow Jones Industrial Average closed down 290 points, or 0.6%, dragged lower by IBM, whose stock fell 8% after its Q2 software revenue missed estimates. IBM’s stumble weighed heavily on the Dow, showing that even strong headline economic data can’t paper over weak individual earnings performances.

As equities rallied and volatility fell, investors moved away from traditional safe-haven assets. Gold prices declined for the second consecutive session, with spot gold slipping 0.5% to $3,370.69 per ounce as of 1:45 p.m. ET. U.S. gold futures weren’t spared either, dropping 0.7% to settle at $3,373.5.

Other metals followed suit. Spot silver lost 0.7%, landing at $39.02 per ounce. Palladium took a bigger hit, falling 3.5% to $1,234, while platinum also edged down 0.5% to $1,405.15. The broad retreat across the metals market tracked with the decline in volatility and appetite for risk-off positioning.

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