(CercleFinance.com) – The IG teams fear that the combination of a low VIX index and a high valuation multiple for the S&P 500 will create a ‘dangerous cocktail’ for the American equity markets.
In a strategy note, Alexandre Baradez, head of market analysis at IG France, points out that the volatility index, the VIX, fell yesterday to around 11.5 points, its lowest level since 2019.
While he points out that such an absence of volatility is not necessarily synonymous with a rapid rebound in stress or a relapse in the stock markets, the professional believes that the risk today seems to be more on the side strained valuation levels of the S&P 500.
According to him, the benchmark index for American managers is currently trading at nearly 21 times forward earnings (PER forward).
For comparison, the S&P was paid almost 23 times anticipated profits in 2021, at the peak of the post-Covid bubble, when rates were at 0% and central bank liquidity flooded the markets, recalls- he.
‘If the US economy does indeed begin to slow… as the Fed continues to delay rate cuts in the face of resilient inflation, then the current weakness in the VIX reflects a lack of investor anticipation… and a rebound of the VIX is to be anticipated in a short time,’ predicts Alexandre Baradez.
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