Stocktake: Sleepy stock markets may lull the unwary

The S&P 500 has eking out only a 1 per cent gain since April

After a rip-roaring start to 2021, stock markets have become, well, boring.

The S&P 500 has basically gone nowhere since April, eking out a 1 per cent gain. Bespoke Investment last week noted that, over the previous 12 trading days, the spread between the index’s intra-day high and low was just 1.65 per cent – the narrowest trading range in almost two years.

LPL Research's Ryan Detrick noted the index had gone nine days in a row where it closed within 1 per cent of an all-time high without breaking through – "about as dull as it gets", said Detrick.

Similarly, the Vix, or fear index, has fallen to subdued levels, as has volatility in the foreign exchange markets.

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However, while markets "appear healthy on the surface", this "ignores a more dubious picture under the hood in which markets remain fragile", says Bank of America. Pointing to "extreme volatility" in economic data, it says foreign exchange markets are "underpriced for a macro shock" and that equity markets are also "too sanguine".

None of this means this is a case of the calm before the storm, but under-the-surface instability does suggest markets may become less sleepy in coming months.