U.S. stock volatility -- or a lack thereof -- has puzzled investors in recent months, according to analysts at Barclays.
Following market ructions caused by President Donald Trump’s unveiling of sweeping "reciprocal" tariffs in early April, volatility in the S&P 500 has declined rapidly -- even as the benchmark index crested fresh highs.
This collapse in volatility may seem "counterintuitive," the Barclays analysts said, noting persistent uncertainty around the White House’s aggressive trade policies and the Federal Reserve’s ongoing struggle to address both weakening employment growth and sticky inflation.
"However, this apparent calm in the index level masks a very different picture at the single-stock level," the strategists argued.
They highlighted that three-month realized single-stock volatility -- a proxy for the 50 largest companies in the S&P 500 -- is "historically elevated" against index-level movements. Over the past two months alone, this spread has even widened at a pace that has only been surpassed 1% of the time in the last three decades, they noted.
A major driver of this uptick has been an ongoing frenzy over artificial intelligence, particularly investors’ focus on massive AI spending plans at mega-cap tech firms like Facebook-owner Meta Platforms and e-commerce giant Amazon, the analysts said. The craze has echoes of the dotcom bubble in the early 2000s, they said, referring to a rapid jump in U.S. tech stock values at the time which was fueled by big investments into internet-based start-ups.
"Notably, historical volatility levels for these stocks are now comparable" to those of the so-called “Magnificent 7” big-name tech giants, which are widely regarded as the primary AI beneficiaries, the bank said.
But, they argued, focusing solely on the Magnificent 7 players would be "too narrow to fully appreciate the scope of the current AI-driven frenzy."
"The microstructure of AI investment is rich with examples of euphoric behavior" among much smaller, less-profitable tech companies, the analysts said.
They added that "it’s clear that investors cannot afford to ignore these segments." Against this backdrop, the analysts called for "near-term caution" and screened for "cheap put candidates among most euphoria stocks" and those with "greater downside potential" based on their distance to a one-year peak. The top names included ride-sharing firm Lyft, tech group Iren, and department store chain Macy’s.
Source :
https://www.investing.com/news/stock-market-news/ai-frenzy-has-been-major-driver-of-singlestock-volatility-barclays-says-4240006
