One bullish indicator for stocks just reached a record – Business Insider

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US House Republicans just passed controversial healthcare legislation. France just elected a new president. Yet equity investors have never been this calm.

Expected price swings in the S&P 500 are at a record low, which implies a lack of nervousness and is generally viewed as a bullish signal for the stock market.

Why such a muted response to two seemingly major geopolitical developments? US investors are simply focusing on other, more relevant market drivers — and they like what they see, according to Credit Suisse.

“The principal macro factors reining in S&P short-dated implied volatility are a weaker US dollar and better than expected corporate earnings,” Credit Suisse derivatives strategist Mandy Xu wrote in a client note.

There’s no denying it’s been a blockbuster earnings season, which is helping drive bullishness. Results so far are showing that S&P 500 earnings grew by 13% in the first quarter, the index’s fastest year-over-year growth since the third quarter of 2011, according to Goldman Sachs data.

About 50% of firms have beaten earnings forecasts, above the long-term average of 46%. Further, 41% of companies have exceeded revenue estimates, the most positive ratio of surprises in almost six years, according to the Goldman data.

A weaker dollar has also contributed to investor optimism. The US Dollar Index has fallen to its lowest level since right after the US presidential election, down by 4.5% from a 14-year high reached December 28. A weak greenback generally translates to higher profits on exports, something that helps the many megacap US firms that sell products overseas and dominate stock indexes.

The lack of concern among US equity investors can also be seen in the CBOE Volatility Index, or VIX, a 30-day barometer of investor nervousness calculated using multiple S&P 500 options. The so-called fear gauge slipped last week to its lowest level since February 2007.

On Friday, one-month implied volatility on the S&P 500 fell to the lowest on record, according to data compiled by Bloomberg.

implied volBusiness Insider / Andy Kiersz, data from Bloomberg

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