The Stock Market May Be About To See A Sudden Surge In Volatility

The Stock Market May Be About To See A Sudden Surge In VolatilityThe Stock Market May Be About To See A Sudden Surge In Volatility

The number of stocks above their 200-day moving average is at the upper end of the range. Volatility in the stock market may be poised to rise in the days ahead, at least based on some options that have recently traded for the VIX. There have been two particularly noticeable trades in recent days that seem to suggest a sudden spike in volatility. Generally, I have been bullish on the S&P 500, and as I have noted in the past to subscribers of my Marketplace, my expectation is for the S&P 500 to rise to around 3,600 in 2020. When looking at the general trend of the market longer term, valuations are still reasonable, with the S&P 500 trading for roughly 18.7 times earnings estimates of $175.30 in 2020, using data provided by S&P Dow Jones. Historically, going back to the year 1988, the S&P 500 has traded with an average forward PE ratio of about 19, which would, at its current valuation, make the market fairly valued. However, during that time, it has traded within a standard deviation band of 14.9 to 22.3. When accounting for the low-interest-rate environment, it seems fair to assume there could be some modest multiple expansion, beyond the average of 19, to perhaps 19.5 or even 20, which would keep the market in that fairly-valued band. At those levels, the S&P 500 could trade with a value of 3,420 to 3,506. However, the market has ...
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