U.S. stocks powered to new highs on Wednesday, as volatility fell to its lowest level on record and investors continued to disavow the dollar after the Federal Reserve decided to stand pat on interest rates.
Fear? What Fear?
A measure of implied volatility known as the CBOE VIX declined Wednesday to its lowest level on record. At 2:01 p.m. ET, the VIX fell to 8.84 – three basis points below the Dec. 27, 1993 low. The index would later close at 9.60, or less than half of its historic mean.
Wednesday marked the tenth straight session Vol closed below 10.00, a remarkable feat for the seemingly never-ending bull market.
Stocks Show No Sign of Abating
A low volatility reading normally implies bullish conditions on Wall Street. That was certainly the case Wednesday when all three major indexes finished at record highs. The Dow Jones Industrial Average was the most notable gainer, adding 97.58 points, or 0.5%, to 21,711.01.
U.S. stocks were trading positively in the overnight futures market, with European futures also benefiting from the tailwind. If recent history is any indication, European equities will follow Wall Street’s lead on Thursday.
Dollar Plumbs 15-Month Lows
The U.S. dollar was back on the defensive Thursday, falling to its lowest level since April 2016. The dollar index (DXY), which tracks the performance of the greenback against a basket of six currencies, fell 0.4% during overnight trade.
Much of the dollar’s decline Thursday came at the hands of the yen and British pound, which have the second and third highest weighting in the DXY basket. The euro led the rally against the dollar on Wednesday, with the EUR/USD reaching fresh multi-year highs.
Dollar Discount Lifts Precious Metals
A weaker dollar spurred fresh gains for precious metals, with gold returning to its long-established inverse relationship with the greenback. December gold futures traded at six-week highs Thursday, having gained more than 1%. Silver also popped, gaining 1.5% to reach its highest level of the month.