Brocker.Org: This extremely quiet market could be setting a trap for investors – MarketWatch

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As stocks cruise along, batting aside real or imagined worries, investors are scanning the horizon, looking for the next signal for this market.

One may have popped up yesterday. On Monday, the S&P and Nasdaq nailed record closes as the VIX

VIX, -1.02%

 , affectionately known as the “fear index”, fell to the lowest level since December 1993. A single-digit close — 9.77 on Monday — has only been managed on a handful of occasions. And compare that with the historical average of 20, a level not seen since the presidential election.

The VIX — full name, the CBOE Volatility Index — calculates the market’s expected 30-day volatility via the pricing of call and put contracts. A high number hints at nervousness in the market. So right now, this indicator is saying there’s not much fear around at all.

Now, some say the VIX isn’t so reliable when looked at on its own. Nonetheless, that multi-decade low is still drawling lots of comments this morning, and it’s the subject of our call of the day.

Over to Kit Juckes, global macro strategist at Société Générale, who says that VIX low is mostly evidence of a predictable and steady Federal Reserve, but also maybe of a too-complacent central bank.

While the tightening cycle the Fed embarked on in 2005 to 2007 was slower than this one, it still ended badly for asset markets, he said in a note to clients.

And the risk is plain for investors: “Super-easy monetary policy is creating artificially low volatility and driving money into trades and investments that are mispriced as a result,” says Juckes.

Funny he should mention that. Here’s a tweet from the Morningstar Investor conference in London on Tuesday that mentions central banks:

Meanwhile, FXTM’s chief market strategist Hussein Sayed cautions that volatility doesn’t typically stay at low levels over “prolonged” periods, and the VIX is likely to revert to is 200-day moving average of around 15.

Here’s his kicker: “Just don’t let the extremely quiet market conditions trap you into taking huge risks.” You = investors.

Speaking of not taking risks, Jeff Gundlach made a bearish call on U.S. stocks at the Sohn Conference in New York. But Pragmatic Capitalism’s Cullen Roche notes the DoubleLine founder’s been bearish on stocks for a while anyway — so take care. Check out a full recap of that Sohn conference yesterday here.

Key market gauges

Dow

YMM7, +0.14%

 and S&P futures

ESM7, +0.10%

are up a little, after record closes on Monday for the S&P 500

SPX, +0.00%

 and Nasdaq

COMP, +0.03%

European

SXXP, +0.47%

 stocks are moving higher. The dollar is mostly up across the board, while crude

CLM7, +0.06%

has been bouncing all over the place again.

One more to note: The price of a single bitcoin

BTCUSD, +6.51%

 jumped past $1,700 this morning. Check out the Market Snapshot column for the latest.

The buzz

Plenty of eyes will be on Nvidia

NVDA, -1.05%

 , last year’s best-performing stock in the S&P 500, as the chip giant will report after the close Tuesday. Here’s a preview.

Office Depot

ODP, +0.59%

 , Valeant

VRX, -3.57%

 , Allergan

AGN, -1.22%

 send out earnings ahead of the open. Walt Disney

DIS, -0.51%

 take its turn after the close (preview here).

Hertz

HTZ, -0.47%

 is down 19% premarket after the car-rental company missed expectations late Monday, as losses widened.

Pandora

P, -2.62%

 is getting some investment dollars, and may be more serious about selling itself off.

Job openings and wholesale inventories are coming at 10 a.m. Eastern.

Read: The U.S. economy isn’t really slowing.

The chart

This chart from JonesTrading’s chief market strategist Michael O’Rourke shows just how the “Fab Five” of technology — Alphabet

GOOGL, +0.89%

Amazon

AMZN, +1.59%

 , Apple

AAPL, +2.72%

 , Microsoft

MSFT, -0.09%

 and Facebook

FB, +0.55%

 — are lording it over the market right now.

“If you take those 5 largest S&P 500 companies, they are responsible for $548 billion in market capitalization gains, which is equivalent to 40% of the entire S&P 500 market capitalization gain for 2017,” says O’Rourke.

JonesTrading

That’s as some fully expect Apple will make it to $1 trillion market cap, after shares hit another record Monday on news Warren Buffett’s Berkshire Hathaway nearly tripled its stake in the iPhone maker.

And watch out for Amazon, which is expected to unveil an Echo device with a screen that will incorporate video-calling capabilities, says the The Wall Street Journal.

The quote

“This case is about more than one rabbit.” — Guy Cook, a Des Moines attorney, is representing the Iowa group that bought Simon, a giant rabbit that died after being flown via United Airlines

UAL, -0.42%

  from London to Chicago.

It seems Simon was destined to be featured at the summer Iowa state fair. The would-be owners are seeking $2,300 to recap costs of transporting and buying the rabbit, along with future earnings.

Cook says his clients want the carrier to pay up but haven’t seen any satisfactory action so far.

Random reads

Homeland Security may ban laptops and devices larger than a cellphone on flights between the U.S. and Europe, having nixed them for a bunch of flights from the Middle East and North Africa.

How a Phoenix serial shooter went undetected for a year

Riot at Fort Lauderdale airport after Spirit Airlines strands hundreds in Florida

Richard Simmons alleges a former associate has been blackmailing him

Happy graduation youngsters. You’re all doomed

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