Bank of America says investors are ignoring one major stock market risk

Core Insights - The S&P 500's historically low volatility may mask a fragile market setup that could change rapidly if correlations between stocks increase [1][4][6] - Bank of America identifies a "coiled spring" effect, where low index volatility contrasts with normal single-stock volatility, indicating potential for sudden market shifts [2][5] Volatility Analysis - The S&P 500's three-month realized volatility is approximately 8.5%, placing it in the bottom 10% of readings since 1990, suggesting a calm market [2][4] - Despite low index volatility, individual stocks are experiencing normal volatility levels, indicating that they are not moving in the same direction [5][6] Market Sensitivity - The current low correlation among stocks is a key factor in maintaining low index volatility; any increase in correlation could lead to significant market volatility [6][7] - Bank of America warns that the market is highly sensitive to correlation changes, with little room for further decreases in correlation [6] Potential Triggers - Political instability in France is highlighted as a potential trigger for market volatility, despite the focus on U.S. economic data and earnings [8]