Volatility in U.S. stocks—or the surprising lack of it—has left investors scratching their heads in recent months, according to Barclays analysts.
After market turbulence triggered by President Donald Trump’s announcement of sweeping “reciprocal” tariffs in early April, volatility in the S&P 500 has sharply declined, even as the benchmark index reached new highs.
This drop in overall volatility may seem “counterintuitive,” the Barclays team said, given ongoing uncertainty surrounding the White House’s assertive trade policies and the Federal Reserve’s efforts to manage both slowing employment growth and persistent inflation.
“However, this apparent calm in the index level masks a very different picture at the single-stock level,” the strategists noted.
They pointed out that three-month realized volatility at the single-stock level—a measure of the 50 largest S&P 500 companies—is “historically elevated” relative to index-level movements. Over the past two months, this divergence has expanded at a pace that has only been exceeded 1% of the time in the last 30 years, they added.
A key factor behind the spike has been the ongoing frenzy over artificial intelligence, particularly investors’ focus on massive AI spending plans by mega-cap tech giants like Facebook-owner Meta Platforms (NASDAQ:META) and e-commerce leader Amazon (NASDAQ:AMZN). Barclays likened the current hype to the dotcom bubble of the early 2000s, when tech stock valuations soared amid heavy investment in internet-based start-ups.
“Notably, historical volatility levels for these stocks are now comparable” to those of the so-called “Magnificent 7” tech giants, widely viewed as the main beneficiaries of AI, the analysts said.
Yet, they cautioned that focusing only on the Magnificent 7 would be “too narrow to fully appreciate the scope of the current AI-driven frenzy.”
“The microstructure of AI investment is rich with examples of euphoric behavior” among smaller, less-profitable tech companies, the analysts added.
They emphasized that “it’s clear that investors cannot afford to ignore these segments.” Against this backdrop, Barclays recommended “near-term caution” and screened for “cheap put candidates among most euphoria stocks” as well as those with “greater downside potential” based on their distance to a one-year high. Top names on this watchlist included ride-sharing company Lyft (NASDAQ:LYFT), tech firm Iren (NASDAQ:IREN), and department store chain Macy’s (NYSE:M).
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