| NEW YORK, June 6
NEW YORK, June 6 Investors have spent several
months deciphering the mixed signals from the U.S. economy, and
yet the S&P 500 has kept moving higher, slowly but surely,
putting it just shy of the 2,000 mark.
With its Friday close, the S&P would need just a 2.5 percent
gain to vault the 2K level - something most did not expect
during the depths of the Great Recession.
The move has been anything but frantic. The S&P 500 has not
made a 1 percent move in a single session in almost two months,
and the CBOE Volatility Index, the market's favored gauge
of anxiety, fell below 11 on Friday, for its lowest close since
"That the market is going up in low volatility is good for
investor sentiment," said Doug Coté, chief market strategist at
Voya Investment Management in New York.
What's unclear is whether the market is starting to become
overvalued. The forward P/E ratio of the index is now 15.8 and
would rise above 16 if the index hits 2,000 and earnings
estimates remain the same. However, Coté said given current low
interest rates, that level would still be low.
Still, the economy notably contracted in the first quarter
of this year. As always, hope of a takeoff in growth persists
among equity managers, boosted on Friday by employment data
showing the economy finally recouped all the jobs lost during
the Great Recession. It took 77 months to do so, the longest
time needed to regain jobs lost in a recession.
"The jobs report was not only strong, but also not too good,
so the overheating fear is not there yet," said Jim Paulsen,
chief investment officer at Wells Capital Management in
"It suggests we're headed up to 2,000 (on the S&P 500) in
the next weeks."
As the market has rallied, some, including several members
of the Federal Reserve, have expressed concern that investors
are ignoring risks. The cost to protect against market declines,
measured in the options market, has been steadily falling.
Some would call that complacency, but the lack of actual
volatility is keeping option prices subdued. Realized volatility
for the S&P in the last 10 days has been a bit more than 4
percent, which theoretically makes the VIX expensive, not cheap.
"A lot of people who hedged their bets by buying volatility,
many did it in the 13 and 13.5 area (on the VIX), so they don't
feel a need to readjust their hedges," said J.J. Kinahan, chief
derivatives officer at TD Ameritrade in Chicago.
The round 2,000 print will scare some, while others will
have no option but to buy in as they chase performance. Paulsen
is expecting a slide in stocks in the second half of the year.
"But right now people are more concerned about getting in
before it goes up more, rather than waiting for a correction,"
(Reporting by Rodrigo Campos, additional reporting by Caroline
Valetkevitch; Editing by Nick Zieminski)