One of the oldest sayings on Wall Street is that investors hate uncertainty. But that adage, much like other conventional wisdom, is being challenged during the Trump era.
Despite enormous question marks swirling around the fate of President Trump’s economic agenda and his political future, American financial markets have remained unusually calm.
During the first 100 trading days of 2017, the S&P 500 averaged a tiny move of just 0.56% between the day’s high point and its low point. That marks the least volatile start to a year since intraday records began in 1970, according to LPL Financial.
“This is all the more shocking when you consider the geopolitical concerns and drama out of Washington,” said Ryan Detrick, LPL’s senior market strategist.
Yes, there have been bouts of Trump-fueled turbulence on Wall Street. Most recently, the Dow plunged 373 points on May 17 during the height of the scandal over Trump’s firing of former FBI director James Comey. It was the market’s worst day in eight months.
But those types of days have been few and far between. There have only been four sessions all year where the S&P 500 closed up or down by at least 1%, the fewest since 1972.
U.S. stocks stabilized almost immediately after the Comey selloff and finished last week at a record high. CNNMoney’s Fear & Greed Index has returned to “neutral” territory, after a brief stint in “fear” territory. The VIX volatility index spiked above 15 on May 17, but it’s back down to the historically-low level of 10.
Extreme calm returned to the market on Friday when the index moved just 0.19% between its high and low. That was the smallest range since March 1996, LPL Financial said.
If the S&P 500 notches a gain on Monday, it would be the index’s eighth in a row. That hasn’t happened since July 2013.
All of this is in the face of continued evidence that Trump’s Russia problem and Republican infighting are jeopardizing the White House’s pro-business agenda. Trump’s promises of tax reform, infrastructure spending and deregulation sent U.S. stocks soaring after his surprise victory in November.
Yet Trump has failed to get any landmark legislation through Congress so far. The tax reform that investors were really banking on doesn’t appear to be anywhere near happening. The timing and scale of tax reform continues to get dialed back, with some predicting temporary tax cuts are more likely than the sweeping reform once envisioned.
Michael Block, chief market strategist at Rhino Trading, said that while he doesn’t think Trump will be impeached, the scandals still pose serious problems for his agenda.
“Do I think this whole situation is a big distraction that will hamper efforts to enact tax cuts and stimulus? Yes,” Block wrote in a report to clients.
Chris Krueger, an analyst at Cowen & Co., compared the lack of legislative success by Republicans to a dog that finally catches the mail truck it had been chasing but now “remains paralyzed with its own success.”
Krueger highlighted how Trump has badly trailed his predecessors in terms of getting people confirmed to fill key positions to run the government.
“It is a huge problem,” Krueger wrote in a report.
One reason for the calm in markets is the support offered by the Federal Reserve and global central banks. Yes, the Fed is raising interest rates and even thinking about shrinking its balance sheet, but it’s pledged to do so very slowly and seems worried about upsetting markets.
The other key is that Corporate America looks very healthy these days. The long-running “earnings recession” ended with a bang in the first quarter as S&P 500 companies grew profits at their fastest pace since 2011. The growth of earnings, the key driver of stock prices, has in turn made U.S. stocks look less pricey than they appeared just a few weeks ago.
Low volatility also tends to be a staple of bull markets. Detrick of LPL Financial said that some of the best years ever have also been the least volatile.
“If you are looking for more volatility, be careful what you wish for,” he said.