It’s extremely rare for Wall Street to be as calm as it is right now.
The VIX volatility index plunged this week to the unusually-low level of 9.8. That hasn’t happened for this closely-watched “fear gauge” since December 1993. To put that into context, that was the month that President Bill Clinton signed NAFTA into law.
Here’s another way to think of it: a single-digit VIX (VIX) reading has happened in less than 0.2% of all trading days since 1990, according to ConvergEx.
“There is an overwhelming market narrative that equates to, ‘Don’t worry, be happy,'” Nicholas Colas, chief market strategist at brokerage firm ConvergEx, wrote in a recent report to clients.
For many investors, it’s a relief to see the calm that has washed over Wall Street. Recall that back in August 2015 the Dow briefly plunged more than 1,000 points in a single day, sending the VIX spiking to 41.
And of course in the fall of 2008, as the financial crisis was unfolding, the VIX rocketed above 81 as markets crashed after the implosion of Lehman Brothers. That wasn’t fun for anyone.
But some worry that today’s extremely low levels of volatility are artificially created by the Federal Reserve and signal that Wall Street has become complacent about risk.
Consider all the uncertainty surrounding the timing, impact and consequences of President Trump’s economic agenda.
“There are plenty of risks in the world and I for one see risks highest when measures of risk are now as low as they are across financial markets,” former Federal Reserve governor Kevin Warsh said on Monday at the 22nd annual Sohn Investment Conference.
Warsh knows a thing or two about risk. During the 2008 financial crisis, Warsh frequently huddled with former Fed leaders Ben Bernanke and Tim Geithner about how to stabilize the system. Warsh explained that he’s a “worrier,” calling it a “scar of the financial crisis — and not sleeping for a few years.”