Traders Unfazed as Soft-Landing Calls Stoke Bets on Market Calm

As soft-landing calls engulf Wall Street, traders are betting that a market calm will endure across investing strategies — despite the latest selloff in US stocks and bonds.

Even as Treasury yields rise on rekindled speculation the Federal Reserve isn’t done raising interest rates, closely watched gauges of volatility across markets are hovering near multi-month lows.

One example: On Wednesday, as the S&P 500 fell 0.7%, the CBOE Volatility Index, which measures expected equity-market swings, ticked up by less than half a point. It remains near the post-pandemic trough hit in June. To Matthew Tym, head of equity derivatives trading at Cantor Fitzgerald, that means “the volatility market does not believe that this selloff will continue.”

The forces supporting those bets on calmer markets are the same ones behind the increasingly sanguine economic outlook. The risk of a recession appears to be fading, inflation is easing, corporate earnings are holding up and the Fed is nearing the end of its most aggressive monetary policy tightening in decades — even if there’s one more move in November.