U.S. stocks hit multiple highs on several occasions in recent weeks, pushing volatility down. Volatility in the stock market is best represented by the CBOE Volatility Index (VIX), also known as the fear gauge. This fear index plunged to a two-year decade low of 9.77, reflecting no fear or greater complacency in the stock market.
While bouts of some economic data has disappointed recently, the overall economy has been on a solid path buoyed by an impressive labor market, increase in wages, rise in inflation, and increasing consumer spending. Notably, the unemployment rate fell to 4.4%, the lowest level in more than a decade. Additionally, Americans have an optimistic view on the economy with confidence hovering around a 16-year high. The Fed has raised interest rates three times since December 2015 but hinted at a more gradual pace of rate hikes this year. All these factors will likely boost the equity markets.
Additionally, renewed optimism in Trump’s pro-growth policies would propel equity markets higher. Added to the major strength is the landslide victory of centrist candidate Emmanuel Macron in the French presidential election that has erased a wave of populist sentiment sweeping through Europe, the big geopolitical risk weighing on investors’ mind formonths.
Moreover, the Q1 earnings season has been strong with multi-year highest earnings and revenue growth, and beat ratios tracking above historical periods. Total earnings for the S&P 500 index are expected to be up 14.2% on 7.3% revenue growth, per the latest earnings preview and the strongest since 2011, according to Thomson Reuters.