Nervousness in the US stock market has climbed to the highest level since the aftermath of the presidential election, even as equities have charted a mostly smooth path to further all-time highs in recent weeks.
Credit Suisse’s fear barometer rose at the end of last week to 35.6, an increase of almost 10 points from the previous week and the highest reading since November 9, the day after Donald Trump’s surprise election win.
The investment bank’s measure gauges three-month options on the S&P 500 index to determine investors’ willingness to “give up upside in order to secure downside protection”, said Mandy Xu, a derivatives strategist at Credit Suisse. Higher readings typically suggest that traders are pricing in higher levels of downside risk, she said.
Ms Xu said a widening in the risk premium on US corporate bonds had played a role in the increase.
The spread on junk-rated US credit, which measures the bonds’ yield compared with that of Treasuries of the same duration, hit 4.04 percentage points on Friday, from 3.78 percentage points at the start of the month, according to Bank of America Merrill Lynch data.
Investors may also be bracing for this week’s Federal Reserve meeting, in which policymakers are expected to raise rates for the third time since the end of the financial crisis, Ms Xu said.
Wall Street’s growing skittishness comes as US stocks have climbed to further peaks amid optimism over corporate earnings, the potential for expansionary fiscal policy and a brightening economic outlook.
The S&P 500 index, the main US stock market index, has climbed 6 per cent since the end of last year. But it has only closed up by more than 1 per cent a single time in 2017, and has yet to close down by greater than 1 per cent, underscoring the muted volatility.
Elsewhere, shares in Alibaba were up 1.7 per cent at $105.18 after reports that the Chinese ecommerce group was in talks with banks to raise $5bn in funding.
The company, best known for its online retail platforms Tmall and Taobao, has been looking to increase its presence in cloud computing and big data in a bid to diversify its revenue streams. Monday’s rise takes Alibaba’s year-to-date gains to more than 20 per cent.
While the retailer’s cloud computing remains lossmaking and generates a tiny portion of total group revenue, analysts reckon it has the potential to emulate the success of Amazon’s cloud business. Amazon Web Services, launched in 2006, went from zero to three-quarters of the US ecommerce group’s operating profit in 10 years’ time.
Elsewhere, Snap shares remained under pressure. The stock, which made a euphoric trading debut this month, fell for a third straight trading session, dropping 4.4 per cent to $21.09. While shares are trading below its debut price of $24, they remain about 25 per cent above the $17 the IPO was priced at.
The S&P 500 was flat at 2,373.47, while the Dow Jones Industrial Average fell 0.1 per cent to 20,881.48. The Nasdaq Composite rose 0.2 per cent to 5,875.78.
