(Bloomberg) -- With Catalan separatists raging, a cloudy outlook for U.S. tax overhaul and all eyes on who President Donald Trump will nominate to head the Federal Reserve, there are a lot of risks out there for investors. Or at least you'd think there were.
Despite the headlines, financial markets are experiencing unprecedented calm and unprecedented gains. Take the S&P 500 Index, which has posted a positive total return in every month since the election. The gauge is on its longest daily winning streak since 2013, and if October ends green it'll be the best monthly stretch in nearly 90 years, according to a Deutsche Bank AG analysis.
The steady gains without any breakout moves are possibly the result of investors being stuck between two warring narratives: Sell on political risks such as a hawkish Federal Reserve chair, or buy on encouraging economic data like Thursday's better-than-expected jobless claims. For now, the latter argument has the edge, said Quincy Krosby, chief market strategist at Prudential Financial Inc.
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“You have these disparate risks crossing the headlines, but it's the market's job to look through that and see if it's different than before,” Krosby said. “The risk appetite increases when you have liquidity in the markets, when the economy is solid, when credit conditions are healthy, which they all are now.”
There's little doubt that stocks have been quiet. The S&P 500 has moved 1 percent or more in either direction on just 4.2 percent of this year's trading days, a rate that if it lasts through the end of the year would make 2017 the least volatile on record.
Currencies have followed suit. The JPMorgan FX volatility index plunged after grinding higher through the summer ahead of significant events like the upcoming Japanese election. Since the fourth quarter's usually among the more volatile stretches, the lack of movement now is notable, according to Jefferies LLC strategist Brad Bechtel.
“You would think that volatility in FX would actually pick up on those things, but so far, it's going the other way,” Bechtel said. “The dollar's rallying, and that helps depress volatility levels because that indicates potentially a healthier U.S.”
The only place where there are signs of life is in U.S. government bonds. Bank of America Corp.'s MOVE Index, a gauge of price swings in the U.S. Treasury market, rose 7.9 percent in the last two weeks. Even so, it still sits 21 percent below its five-year average.
Quarterly trading volume in the largest exchange-traded fund tracking the S&P 500 fell below $1 trillion for the first time since 2007, according to Bloomberg Intelligence's Eric Balchunas. ETF trading typically picks up during major macro events, as investors hedge and move positions with broad exposures. During the financial crisis, ETFs represented about 50 percent of total U.S. equity trading volume, compared with about 30 percent in the first half of this year, data compiled by JPMorgan Chase & Co. show.
Looking at the tumultuous events going on across the globe, and trying to calculate the unknown affects of the Fed's unwinding and the European Central Bank's tapering, has investors paralyzed, said Andrew Brenner, head of international fixed income at Natalliance Securities in New York.
“Think of it like you have your two Greek gods, the water and the sun, fighting each other and right now it's not going anywhere,” Brenner said. “It's going to end badly. We're about ready to make a big move that will happen by the end of this year.”
--With assistance from Katherine Greifeld
To contact the reporter on this story: Dani Burger in New York at dburger7@bloomberg.net.
To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Eric J. Weiner, Brendan Walsh
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