The summer trading slump coupled with already smooth markets saw volatility in the S&P 500 drop to just 2.43%, the lowest it has been in five decades.
The last time volatility was as low was in February 1969.
Measures looking at volatility over 30 and 90 days also dropped to the lowest levels in almost 20 years.
Calmness in markets came just a few days after the Dow Jones closed at a record high for the eighth consecutive week on Friday, but not everyone is convinced about how sustainable the trend will be.
Didier Borowski, Amundi head of research, strategy, and analysis, pointed out the current economic cycle was one of the longest in US history and remained “fragile”.
“Since the beginning of the recovery, on average real GDP has increased at an annualised rate of 2%. This cycle is already one of the longest in US history. The US economy is now nearing full employment without generating the inflationary pressure expected at this stage of the cycle,” he said.
“Corporate earnings recovered dramatically in the first years after the crisis but business investment has proved sluggish by historical standards, probably due to the slowdown in productivity and the uncertain outlook. The ongoing cycle is fragile,” he added.
He warned a recession was a risk and said: “The equity markets seem clearly overvalued in view of the traditional metrics and interest rates are well below their equilibrium level. The recession risk is quite low from an economic point of view. However a sharp correction in asset prices would likely put the economy in recession.”
