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Why volatility is down and why flat is the new up

Stocks are mixed today, and volatility is flat and trending down, and that may be a surprise to a lot of people. The market had reasons to go down. Stocks have been strong and are somewhat overbought. On top of that, we have a strong dollar and weak oil today, two traditionally toxic combinations for stocks.

But stocks are mixed, with the S&P flat. What's going on? The Fed's dovish posture and today's economic data is a positive for stocks.

The March nonfarm payroll report was mostly inline with expectations, with no major revisions. That moved the dollar up, putting some pressure on commodities and commodities stocks.

The March ISM manufacturing index rose to 51.8 from 49.5, well above expectations of a rise of 50.5, ending the 5 month losing streak of below 50 prints.

These are important data points. Remember, a little more than a month ago there were a lot of people who thought the markets would be down 20 percent this year because the U.S. was heading for a recession.

That looks increasingly unlikely.

And if you can't make the case for recession, that's a case for staying with stocks.


The CBOE Volatility Index (VIX), which had opened higher, has been moving down all morning and is again sitting near the lows for the year.

Let's look at the source of recent volatility:

1) The Fed itself has been a major source of volatility. With Janet Yellen re-iterating her uber-dovish position, the VIX has declined because the Fed (higher rates) is less likely to be a source of volatility, at least for the next few months.

2) The dollar, another source of volatility, is also partly being driven by the Fed. The dollar trend has been weaker this year, but simple stability would be supportive of low volatility.

3) Oil. Partly driven by the dollar and partly by the global supply/demand equation, oil is unsettled today, driven by the double whammy of a stronger dollar and Saudi Arabia's statement that it would not cap production unless Iran and others also participated. There's still no consensus that a floor has been put in, but as time goes on it seems less likely that the $26 oil prints we saw in February will be seen again.

4) China. The other major source of global volatility. Shanghai has been a poor performer this year (down 14%), but has been more stable in the past two months. The surprise overnight was the Chinese Purchasing Managers Index (PMI) at 50.2, above the 50-point market that indicates growth for the first time in five months.

What's all this mean? I don't give stock advice, but from my vantage point--with this data--stocks are at least a solid hold.

Is that an unenthusiastic endorsement? So be it.

Flat is the new up.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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