In This Article:
(Bloomberg) -- A measure of the S&P 500 Index’s ability to brush off fear-inducing headlines and surprise policy announcements is the strongest since before the Covid-19 pandemic.
Most Read from Bloomberg
Investors are now less fixated on one particular variable — like a key inflation report — than in recent years, making the market more resilient to macro shocks, according to analysts at 22V Research.
Today, they say, seven variables — ranging from geopolitical risks to interest-rate moves — explain half of the S&P 500’s volatility, a sign of steadiness that has climbed back to its pre-pandemic level. It takes a greater breadth of concerns now than in 2017, when US President Donald Trump started his first term in the Oval Office, or in 2020, when almost 70% of S&P 500 volatility was driven by news about Covid-19, to move the stock market, according to 22V.
“More variables, like earnings, industry group, and factor exposures, matter,” said Kevin Brocks, director at 22V Research. “The macro picture has improved and the economy is further from recession.”
As Wall Street’s attention is getting divided between a bigger number of factors, investor focus on corporate earnings — one of the key drivers of the stock-market rally — is on the rise. In the past six months, 74% of returns in S&P 500 companies were driven by stock-specific rather than macro factors, up from a two-decade average of 58%, data compiled by Goldman Sachs Group Inc. show.
Wall Street’s reaction to corporate results this earnings season highlights the trend. Companies that guided higher on profit and sales so far this reporting cycle have outperformed the S&P 500 Index by 6.7% within a day of posting results — the second-most since early 2020, BI data show.
The Cboe Volatility Index — or VIX — is hovering around 15, not far above its lows for this year, indicating a relative sense of calm in the face of rising macro uncertainty related to tariff announcements from the White House and economic data releases.
But even as investors appear relatively immune to macroeconomic headlines, sentiment is still souring. A recent Bank of America Corp. survey showed about 89% of respondents felt US equities were overvalued, the most since at least April 2001.
“While we haven’t reached the point where investor anxiety is translating into outflows from US equity funds, it’s reasonable to assume that this may be where we are headed if sentiment doesn’t stabilize soon,” Lori Calvasina, head of US equity strategy at RBC Capital Markets, wrote in a recent note.