Analysis-After lull, Wall Street eyes volatility pickup as risks build

Core Insights - Wall Street is experiencing one of its calmest quarters in nearly six years, with the S&P 500's one-month volatility averaging 10.8, the lowest since December 2019 [1][2] Market Conditions - The stock market has reached record highs as investors increased equity exposure following a tariff-related selloff in April, leading to a significant reduction in volatility [2] - The measure of market fear is near historic lows, prompting concerns among investors that a spike in volatility may be imminent [2][5] Volatility Trends - Historically, low volatility levels tend to persist for weeks, often followed by sharp spikes, as seen at the end of 2019 and the third quarter of 2018 [4] - Market participants are aware that the next move for volatility is likely to be upward, given the current cycle [3] Investor Sentiment - Optimism surrounding large-cap stocks linked to artificial intelligence and confidence in the U.S. economy are currently supporting risk appetite among investors [5] - However, potential catalysts for increased volatility include a possible government shutdown and upcoming economic data that could influence interest rate decisions [5][6] Risk Management - There has been a noted increase in demand for protection against market drops, with the three-month skew rising significantly compared to other tenors [7]