A closely watched gauge of expected stock-market volatility dropped sharply Monday morning as a global relief rally sent equities soaring following a first-round French presidential election result that offered few surprises.
The Chicago Board Options Exchange Volatility Index, or VIX
, was down nearly 22% at 11.45 Monday morning, trading at its lowest level in more than two weeks. The VIX, often referred to as Wall Street’s fear gauge, had hit its highest level of the year early last week as jitters over the French election and other concerns.
The first round saw independent centrist Emmanuel Macron and far-right National Front leader Marine Le Pen emerge as the top vote getters, setting up a May 7 runoff. Polls show Macron with a large, early advantage, which comes as a relief to investors who had feared a stronger showing by the anti-euro Le Pen in the first round.
The VIX uses options on the S&P 500
to gauge volatility expectations over the coming 30 days. VIX futures also declined:
— CBOE (@CBOE) April 24, 2017
The VIX has been relatively subdued since the financial crisis. And the jump in volatility seen earlier this month still left the gauge below its long-term average of around 20. Meanwhile, as stocks remained elevated, analysts had questioned the VIX’s reliability as a fear gauge.
Stock-index futures pointed to a sharply higher start for U.S. stocks Monday morning, after European stocks
soared, putting France’s CAC 40 index
on track for its highest close since January 2008. Traditional havens incluiding gold
and Treasurys sold off.
So all clear, then? Not necessarily. The approaching U.S. government funding deadline on April 28 could be the next event to spark a round of investor jitters.
“The markets appear rather complacent about the issue, expecting that a shutdown will be avoided, so any escalation of the risk will be very troubling,” said Alvin Tan, currency strategist at Société Générale, in a Monday note.