Pro Analysis

Santoli: These 3 big investor worries seem way overblown

A trader works on the floor of the New York Stock Exchange.
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A trader works on the floor of the New York Stock Exchange.

Benjamin Franklin advised, "Do not anticipate trouble, or worry about what may never happen."

Easy for him to say, though - his wealth was in print shops and newspapers 200 years before the Internet.

On Wall Street today, worrying aloud is the way to sound smart and convey that you're paying attention to capital-destroying risks, however remote. Promising to anticipate trouble, for a fee, is the the hedge-fund industry model.

With global share prices near a record high, we're seeing a clustering of worry over a few supposedly foreboding market patterns: A flattish Treasury yield curve, suppressed stock volatility and the heavy influence of a few dominant tech stocks.

In each case, the worries are probably overblown - or at least don't reflect the kind of nasty "divergences" that can bring on swift, deep and lasting downside pain in equities.

1. Narrowing yield curve

The gap between the two- and 10-year Treasury has been falling for weeks, and just over one percentage point is about as narrow as it's been since the U.S. election. The yield curve can serve as a proxy for economic momentum, inflation expectations, hopes for policy stimulus and bank profits.

Those wedded to the "reflation" trade of want to see the curve steepen. But there's nothing particularly unusual or alarming about the recent flattening action. As Fed-watching economist Tim Duy explains here, this is a typical feature of Federal Reserve tightening cycles. The curve was around this flat in both the mid-1990s and mid-2000s after the Fed started lifting short-term rates to restrain growth and keep inflation in check.

Unless and until the curve inverts, which is a pretty clear recession warning, it's not saying much except that nominal global growth is unlikely to gallop higher for years.

Yield curve and recessions (gray):

Source: Federal Reserve Bank of St. Louis

The inability of the 10-year Treasury to get back to or above 2.5 percent has been presented as an "argument" between a sober bond market and cheery stock market.

But this isn't a strenuous disagreement. Stocks are supported by a cyclical upturn in corporate earnings, while global growth has firmed without tripping inflation alarms that would spook bond investors. And, crucially, corporate-bond spreads remain quite tight, reflecting very little financial stress or serious economic-slowdown risk. There is a reassuring lack of disagreement between corporate bonds and corporate equities, in other words.

2. The volatility vacuum

The CBOE S&P 500 Volatility Index, or VIX, is the most common way investors track volatility and is one of the tools most likely to be misused to make market projections.

The VIX, which closed under 11 Friday, is indeed low on its long-term scale—it rarely spends much time under 10, for instance. And while spikes much higher in the VIX are often buy signals for stocks, a persistently low VIX mostly just reflects a steady calm in the day-to-day market action itself, offering no real clues about when and how that might change.

Once again, we saw extended stretches of similar suppressed volatility in the mid-'90s and mid-'00s. Options-market veterans say a low VIX is compatible with sturdy share prices, and VIX would need to begin an uptrend above 14 or so to raise a yellow flag. Could happen soon, or not.

CBOE Volatility Index since 1990

Source: Federal Reserve Bank of St. Louis

Marko Kolanovic, JP Morgan's widely followed derivatives strategist, told me in a CNBC Pro Talks interview (airing this week) that the volatility setup remains benign, giving stocks a slight upward bias for now. Yes, some cavalier behavior is building - such as the aggressive selling of options for income. But he's not seeing the extremes, or the catalyst, that would suggest a short fuse is lit - yet.