Hear Ye, Hear Ye: Wall Street’s Crystal Ball Might Be a Tad Too Zen

Guess what folks?! You remember the bull market in the 90s? Back when boy bands ruled the airwaves and high-waisted jeans were in vogue? Well, the stock market is currently sporting that same placid vibe according to a major Wall Street signal. And by placid, I mean super chilled – as peaceful as a Buddhist monk on a silent retreat.

The Lowdown on the VIX

Permit me to introduce you to the CBOE Volatility Index (or VIX for short). Ah, the VIX – our most evocative little ticker symbol – considered something of a psychic hotline for investor feels about market volatility. Being the Wall Street’s go-to ‘fear gauge,’ it’s practically a jitter-o-meter for Wall Street fortunes.

Here’s the kicker: right now, that jitter-o-meter is hovering just below 10. To give you a sense of scale, the VIX’s normal 25-year average is twice that number. The current lull is the lowest since Bill Clinton’s first year in office. Just to contrast, flashback to the 2008 financial crisis – the VIX was somersaulting over 60, like a turbo-charged gymnast.

Serene or Scary?

You might think this Zen-like calm should be cause for confetti and champagne. Typically, a less spooky VIX suggests less perceived risk and by extension, a stronger argument for pumping up those equity investments. At least, that’s what Jack Ablin, bigwig money man at BMO Private Bank, might tell you.

But wait! Let’s not put away our worry beads just yet. This period of calm might not signal investor confidence like it did in the grunge-packed early ’90s. The last time the VIX got this close to single digits was in 2007, right before the global financial meltdown. Irony much? Investors, busy celebrating their prodigious returns, didn’t see the financial tsunami brewing on the horizon. Ouch.

Does this mean our current investor crowd is too laissez-faire about market risks? Are they partying like it’s 1999, oblivious to potential stock exposure? If reality bites and the market weakens, there’s a risk of a melodramatic overreaction – think rapid sell-offs. As Ablin puts it, “Investors are concerned that the connection between falling volatility and rising stock purchases could quickly shift from a virtuous cycle to a self-reinforcing feedback loop—potentially resulting in a severe, volatility-driven market correction.”

One Indicator to Rule Them All? Nah.

Before we all run off to join a doomsayer’s cult, let’s remember that every tool has its limits. As Jeffrey Kleintop, mighty money guru at Charles Schwab, points out, the VIX has actually bobbed along below its average since the bear market quit the stage in 2009. Meaning? We’ve been enjoying a bull market with more of a purr than a roar.

That said, a placid VIX hasn’t stopped stock gains from fist-bumping the sky. Even so, investors can’t shake that mild suspicion when everything feels a bit too good. It’s like that eerie moment in a Spaghetti Western when the crickets fall silent, and the cowboy sneers, “It’s quiet…too quiet.”

So folks, let’s relish the tranquility but keep an eye on the horizon. You never know when a metaphorical tumbleweed might blow through Wall Street’s eerily quiet streets.