Will the volatility of US stocks increase? Panic index hovering around more than a year low.

It seems that the US stock market is prone to pullbacks, and if there are problems with the economy or corporate profits, the pullback could be significant.

Of course, the S&P 500 index could still rise to 4,200 points, but this is the level that investors have been selling for in recent months.

Currently, the market seems to be ready for the next shock. This may be related to the economy or corporate profits.

US stock performance is key

Currently, the S&P 500 index is around 4,100 points, with a total forward P/E ratio of about 18 times, higher than the approximately 16 times at the beginning of 2023.

The first-quarter earnings reports that have been released have largely exceeded expectations, but the full impact on the economy may not be apparent until the second or third quarter reports.

Analysts estimate that the full-year earnings per share for the S&P 500 index components in 2023 will be $218, slightly higher than last year's $216.

If an economic recession occurs, earnings per share will decline year by year, which means that analysts may be too optimistic now.

Evercore expects earnings per share for the index to reach $206 this year. Based on this, if 2024 is a year of recovery, earnings per share may be closer to $221, rather than the widely expected $245.

If most analysts lower their expectations to lower levels, it will affect the performance of the US stock market.

Will US stock volatility increase?

The VIX is currently around 19, a new low in more than a year, lower than the low point of 30 points reached several times in 2022, when market uncertainty was high.

Julian Emanuel, a strategist at Evercore, said that the VIX index should soon "mean revert," which means that the index should rise to a level that is more in line with current economic concerns.

However, predicting a decline in US stocks may have a significant risk.

Data from Bank of America shows that portfolio managers of stock investments hold a large amount of cash, averaging about 5.5% of fund assets. This is close to the high point of slightly above 6% in decades, which means that fund managers have a lot of funds to buy stocks.

But perhaps fund managers are currently holding cash because the yield is much higher than a few years ago.

Overall, the risk of a pullback in the US stock market is increasing. When buying stocks now, the wise thing to do is to strictly follow the discipline.