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If October is too frequently a cruel month for the stock market, the current edition looks set to improve on its reputation. Stocks have risen and the nervousness diminished; VIX® had fallen for 10 consecutive days by October 12 and, by last night, had fallen by two thirds from its August intraday highs.
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Every one of our volatility measures is down. Bullishly, the largest decreases occurred in the world's trouble spots of recent months - China (as proxied by both Hong Kong and Australia's equity markets), continental Europe, and crude oil.
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In contrast to the common perception of a currently fragile marketplace, the decline in volatility measures is quite remarkable. More than half of our measures are below their 200-day trailing average; the remainder are close to average.
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Yet again, the sole canary in faltering voice is credit spreads. Credit spreads in U.S. high yield bonds have been creeping up for over two years; October saw the S&P/ISDA CDS U.S. High Yield Index close above 4% for the first time since February 2013.
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