An 'Eerie Calm'

A rare market event... Extreme 'calm'... What it might mean... The odds are on a bullish outcome... The headline cryptos are rallying... Ethereum ETFs look like they're coming... Another piece of the inflation-protection puzzle...

Nothing to see here...

The major U.S. indexes were little changed today, and trading volume was relatively low. This doesn't shock us... As we wrote yesterday, the economic-data calendar doesn't have much of significance until next week, when new inflation numbers come out.

Tomorrow's earnings report (after the close) from household name Nvidia (NVDA) may turn things one way or another, but the market seas were calm today... The benchmark S&P 500 Index was up 0.3% to make a new all-time high, almost as quietly as possible.

Believe it or not...

By one market indicator that many on our team like to follow, the U.S. stock market has rarely been as "calm" as it is today... and hasn't been this way since just before the onset of the pandemic in early 2020...

This is according to what some call the market's "fear gauge," formally known as the Chicago Board Options Exchange's Volatility Index, or VIX. Our colleague and DailyWealth Trader editor Chris Igou shared this chart and an analysis with his subscribers today...

Longtime readers are likely familiar with this measure. But for those who aren't or need a refresher, the VIX measures options activity on the U.S. benchmark S&P 500 and displays it with a single number that represents the index's "implied volatility."

The VIX value is essentially an aggregate of a wide range of S&P 500 Index options. This number is based on bullish or bearish bets – call and put options – expiring in roughly 30 days.

A higher VIX, say above 30, indicates greater expected volatility. The VIX hit an all-time high above 80 in March 2020, for example, when the pandemic caught investors off-guard. I (Corey McLaughlin) still recall my initial amazement at this "all-time high" back then (and the strangeness of a "pandemic economy").

A lower VIX number, meanwhile, indicates a narrower set of expectations from investors and traders in the options market. You can call this anything from calm to complacency. In any case, it's important to note, as Chris wrote today...

Most folks are likely ignoring this development since there's nothing to panic about. There's no crisis that's putting the market in a blender and potentially endangering your portfolio.

But that doesn't mean you should ignore it. We already know that this calm is rare. To put the number in context, it's in the 9.2 percentile going back to 1990. That means only 9.2% of other cases have been lower than 12 in the past 34 years.

So, what we're seeing right now is a rare market event in and of itself over more than three decades. It's unlikely to last forever, if much longer. Even in the above chart, you can see the VIX tends to ebb and flow over time based on any number of factors.

I wouldn't be surprised if it rises again relatively soon. But as Chris noted, history suggests that over the longer run – which we like to think about, too – a period of "calm" like this has been a bullish signal...

What this may mean...

Many people start paying attention when the index hits extreme levels of fear. But as Chris noted in DailyWealth Trader today, a VIX reading this low is significant, too, because it points to outperformance from U.S. stocks in the following months and year.

He looked at each case since 1990 when the VIX dropped to 12, where it closed on Friday. On average, the S&P 500 gained roughly 5% in six months and 9.5% a year later. That beats the U.S. benchmark's average 4% six-month return and 8.1% annual return.

As Chris noted, "The outperformance might not be massive. But what's impressive is the win rate after one of these events." As he wrote...

The S&P 500 was up 86% of the time six months later... and 84% of the time over the next year. Those are darn good odds.

Meanwhile, the maximum gain after one of these events was 37% over a year. And the largest drop was 12%.

In short, yes, the market is going through an eerie period of calm. But that doesn't mean that panic has to follow.

Zooming out a bit, the VIX has been trending lower since its all-time high in 2020. It hasn't been a straight shot down, and there are bound to be short-term spikes ahead. After all, if "everyone" is thinking the same thing, that allows for scenarios that surprise, which our Ten Stock Trader editor Greg Diamond is talking about. (Check out his free video on this here.)

Take your pick of things to think about: high(er)-for-longer inflation and interest rates... or an escalation of the war in the Middle East that could disrupt supply chains and the oil picture even more... Plus, there's all the consequences of the nation's debt load just growing and growing.

However, relatively low volatility readings can occur during extended bull market runs, too. And as Chris showed, history suggests that, more often than not, U.S. stocks outperform after an extremely "calm" period like today.

Elsewhere, the headline cryptos are rallying...

We noted yesterday that the price of bitcoin, the world's most popular cryptocurrency, briefly topped $70,000. As I write, it's trading just below that threshold and is up more than 20% since its low three weeks ago.

That's nothing... Yesterday, Ethereum – the world's second-largest crypto by market cap – jumped an astounding 20% in one day. The move followed reports from financial media suggesting that the Securities and Exchange Commission ("SEC") might approve spot Ethereum exchange-traded funds ("ETFs") in the next few days...

SEC officials reportedly informed potential issuers of Ethereum ETFs yesterday they would approve the listing this week...

This comes after a major upgrade to the Ethereum network as well, which you might recall Crypto Capital analyst Stephen Wooldridge II prepped folks for in the Digest back in February when he laid out his bullish case moving ahead for the crypto.

Stephen also wrote then about the possibility of Ethereum ETF approval to follow the launch of spot Bitcoin ETFs earlier this year. This served as a major bullish catalyst for bitcoin's price and cryptos in general. In his February 15 guest essay, Stephen wrote...

With Ethereum's success and adoption throughout all of the crypto community as a backdrop, some analysts believe a spot Ethereum ETF, like the bitcoin ones, is around the corner... getting approved as soon as May.

Just on Monday, the asset management giant Franklin Templeton disclosed it has applied with the SEC to offer a spot Ethereum ETF, joining firms like BlackRock and Invesco and six others that are already seeking approval.

Others claim we're still a long way from Ethereum ETFs happening.

But if they were to happen, much like the 11 bitcoin ETFs that recently launched, it would be a game-changer for investors looking to diversify or add crypto exposure, and it could open the floodgates for a huge variety of other crypto ETFs in the future.

We could be seeing this happen right now.

Another piece of the inflation-protection puzzle...

There is another narrative (and reality) to consider about cryptos that might become more talked about again soon... especially if inflation keeps up as it is.

We mentioned yesterday that a simple recipe for protecting and building wealth during times of high(er) inflation is to own high-quality stocks – which can reward shareholders no matter the conditions – and also "hard assets" like gold. That hasn't changed in a day.

But there is a good argument to be made to add other ingredients to that recipe, like cryptocurrencies such as bitcoin. After all, some refer to it as "digital gold," given its inflation-protection properties, like an ultimate fixed cap of supply.

Just last month, bitcoin experienced its fourth "halving" event in its relatively short history. The event slowed the inflation rate of bitcoin from around 1.8% to roughly 0.9% by cutting in half the rewards earned by bitcoin "miners" on the decentralized network.

It's after these "halving" events when bitcoin's price has made new all-time highs, as demand grows and supply remains more constrained and the cryptocurrency's value "inflates" by less than it did four years earlier.

Crypto Capital editor Eric Wade has, as usual, been keeping his subscribers informed about all the exciting things happening in the cryptocurrency space today... and opportunities to make lucrative gains.

Earlier this month, he updated folks on why Ethereum could see 3X gains in the next year or two. He reminded folks about Ethereum's "smart contract" technology and what it allows people, businesses, and entities to do that they otherwise can't.

On Friday, in Eric's latest weekly video update for subscribers, he outlined how owning bitcoin – and other assets like real gold – can help you withstand a recession and protect your portfolio from inflation... and how to think about adding crypto exposure today.

Existing Crypto Capital subscribers and Stansberry Alliance members can find Friday's video update here – and the latest monthly issue of the newsletter hit your inboxes and our website just a little bit ago as well.

New 52-week highs (as of 5/20/24): Agnico Eagle Mines (AEM), Alamos Gold (AGI), Applied Materials (AMAT), Amedisys (AMED), Alpha Architect 1-3 Month Box Fund (BOXX), Brown & Brown (BRO), Cameco (CCJ), Donaldson (DCI), Danaher (DHR), Dimensional International Small Cap Value Fund (DISV), Denison Mines (DNN), Freeport-McMoRan (FCX), VanEck Gold Miners Fund (GDX), SPDR Gold Shares (GLD), Alphabet (GOOGL), iShares U.S. Aerospace & Defense Fund (ITA), Kinross Gold (KGC), Kinder Morgan (KMI), Liberty Energy (LBRT), Motorola Solutions (MSI), Micron Technology (MU), Sprott Physical Gold Trust (PHYS), Sprott Physical Silver Trust (PSLV), ProShares Ultra QQQ (QLD), RadNet (RDNT), Royal Gold (RGLD), Sandstorm Gold (SAND), Sprouts Farmers Market (SFM), Sprott (SII), Skeena Resources (SKE), iShares Silver Trust (SLV), VanEck Semiconductor Fund (SMH), ProShares Ultra S&P 500 (SSO), Teck Resources (TECK), Teradyne (TER), The Trade Desk (TTD), Texas Instruments (TXN), Tyler Technologies (TYL), ProShares Ultra Gold (UGL), Global X Uranium Fund (URA), Sprott Uranium Miners Fund (URNM), Vanguard S&P 500 Fund (VOO), Verisk Analytics (VRSK), Advanced Drainage Systems (WMS), and Wheaton Precious Metals (WPM).

Given the calm market today, we have an appropriately quiet mailbag as well... What's on your mind? Have a question? As always, e-mail us at feedback@stansberryresearch.com.

All the best,

Corey McLaughlin
Baltimore, Maryland
May 21, 2024