S&P 500; US Indexes Fundamental Daily Forecast – Low VIX Raises Concerns Over Volatilty

U.S. stock index futures are trading mixed in the pre-market session in reaction to higher markets in Asia and a lower trade in Europe. Asia essentially followed Wednesday’s higher U.S. session and Europe is reacting to the latest batch of corporate earnings.

On Wednesday’s U.S. equity indexes closed mixed with the benchmark S&P 500 Index and tech-based NASDAQ Composite posting higher closes and the blue chip Dow Jones Industrial Average closing lower.

The S&P 500 Index was primarily driven by a rally in energy stocks. The energy sector traded higher in reaction to a huge gain in the crude oil market after the U.S. Energy Information Administration reported a bigger-than-expected drawdown in inventories.

The NASDAQ Composite closed only 0.1 percent higher, but it was good enough to sustain its five-day winning streak.

Despite the presence of oil companies, the Dow Jones Industrial Average closed 32.67 lower with Disney and Boeing being the biggest drag on the market.

The major indexes showed almost no reaction to warnings from North Korea of a possible sixth ballistic missile test and President Trump’s surprise firing of FBI Director James Comey.

Forecast

It’s possible that investors are waiting for the fallout from the firing. Sometimes it takes time to figure out how a situation will play out especially since the firing took place late in the day. Looking ahead, investors could become worried that Comey’s abrupt dismissal could delay key items in the administration’s agenda, including corporate tax reform and deregulation.

I think that investors should be concerned because according to the charts, the S&P 500 Index and the Dow Jones industrial Average are both trading lower since March 1. This was the day the markets posted a huge gain after Trump delivered his first speech before Congress.

The reaction in these two markets suggests to me that investors are already reacting to Trump’s inability to pass tax reform, deregulate certain industries and spend aggressively to rebuild the country’s infrastructure.

My other concern is the decline in the VIX that is trading at its lowest level since December 27, 1993. The VIX is also known as a fear gauge, but I like to call it a complacency index. Investors are behaving like there are no worries, and contrary thinking tells me that the odds are that something is going to happen to fuel a volatile reaction in the market to the downside.

It may be questions about whether President Trump will be about to boost growth. It may be political fallout from the firing of the FBI direction. It may be a legal battle over Trump’s ties to the Russians, or even an escalation of problems with North Korea. Or perhaps, something we’re not even aware of at this time.

So although stocks are trending higher and near all-time highs and the VIX as multi-year lows, something has to give soon.