GDP grew faster than previously thought in the fourth quarter, and was revised from 3.2% to 3.4%, boosted by strong consumer spending and business investment in nonresidential structures like factories. Economists polled by Reuters had expected GDP growth would be unrevised.

The resilient labor market is supporting the economy. The Labor Department said initial claims for state unemployment benefits dropped 2,000 to 210,000 for the week ended March 23, versus 212,000 claims expected. 

In any case, investors are now focused on the long Easter week-end. The trading week comes to an end in America and Europe, where stock exchanges will be closed for Good Friday. Thursday's session will also be the last of the quarter, which gives me the opportunity to make a preliminary assessment. Indices performed well overall, particularly the S&P500, which gained 10%. The broad index should even get off to its best quarterly start since 2019, if today's session doesn't go haywire. Excluding highly volatile markets due to hyperactive currencies (Argentina, Turkey), the quarterly extremes are to be found in Japan, where the Nikkei 225 gained over 21%. And China, where Hong Kong and Shanghai posted slightly negative results. In Europe, the French CAC40 has gained 9% since the start of the year, the Swiss SMI 5.5% and the Bel20 around 3%.

Risk aversion remains low among investors, whose appetite for equities is still strong. In the stock market, the preferred tool for measuring nervousness is the VIX, nicknamed the Fear Index. But nobody's afraid of it anymore. Because it's broken, according to some specialists. But by whom? Here's where it gets interesting, for a reason I'll explain. As it's beyond my intellectual powers, I'm not ashamed to say that this demonstration is the fruit of the reflection of AlphaValue's excellent research team, who drew on the Financial Times' no less excellent Alphaville column.

Analysts at AlphaValue, who logically preach for their parish, stress that the profession of fundamental analyst still has a bright future ahead of it. Why is that? Because the market can no longer really rely on its traditional markers, notably the VIX index, to measure market nervousness, and therefore risk. The VIX is based on volatility. But volatility has disappeared in recent months. To be precise, individual stocks are still volatile, but the big potato that encompasses them is not.

The explanation, put forward by Alphaville, seems to lie in ETF options, and more precisely in a strategy that uses them, called "call overwriting". To put it simply, a fund holds an underlying asset and sells a call option on it. The fund then receives a premium. The mechanism leads to a fall in implied volatility (via the option offer) and realized volatility (brokers hedge long gamma positions). The detailed explanation is available on Alphaville. The thing is, the options-based ETF market isn't marginal: it's worth some $100 billion (its volume has increased eightfold in three years), around 70% of which is specialized in the oversale of call options. As a result, volatility has been severely eroded: the VIX and others no longer primarily reflect the appetite for hedging against a possible market downturn, but have become gangrened by these complex hedging strategies, disconnected from the perception of risk.

Getting back to more mundane matters, the yield on US Treasuries rose yesterday after comments by the much-listened-to Fed Governor Christopher Waller, who is often a trend-setter. True to form, he advised the markets not to get too carried away with rate cuts just yet. Investors didn’t care, since they’re focused on their Easter weekend. In any case, they know that the week's two most important events, the publication of the PCE inflation rate and a speech by Fed boss Jerome Powell, will take place tomorrow, when Wall Street is closed. 

In the Asia-Pacific region, rumors of intervention to support the yen have pushed the Nikkei 225 down by 1.7%. It will take more than this for the Tokyo Stock Exchange to lose its status as the darling investment of international investors. China rebounded by 0.9%, while South Korea and Taiwan fell back. Australia and India are up. Wall Street and European indices are mixed. (Our Today on Wall Street column returns on Tuesday).

Today's economic highlights:

UK GDP, Switzerland's KOF leading and Germany's unemployment change are on the agenda, along with the eurozone's M3 money supply, US GDP, new jobless claims, Chicago PMI, Pending Home Sales and University of Michigan sentiment. The full agenda is here. 

The dollar is worth EUR 0.9254 and GBP 0.7915. The ounce of gold is up to USD 2210. Oil stabilizes, with North Sea Brent at USD 86.29 a barrel and US light crude WTI at USD 82.30. The yield on 10-year US debt stands at 4.21%. Bitcoin is trading at USD 71000.

In corporate news:

  • Apple, Qualcomm, Alphabet - Global smartphone shipments are set to rebound by 3% this year, against a backdrop of slowing inflation, which should enable demand to pick up in emerging markets, says Counterpoint Research. The research firm also notes that the integration of generative artificial intelligence (AI) is driving consumers towards high-end devices.
  • Take-Two Interactive Software is down 1.3% after the American video game publisher announced the acquisition of Gearbox Entertainment from Swedish group Embracer for $460 million.
  • Walgreen Boots Alliance lowered its earnings forecast for fiscal 2024 on Thursday, citing economic challenges for its retail business, as well as a $5.8 billion impairment charge related to its Village® business. Share price down 2% in pre-market trading.
  • The Chemours reported on Wednesday evening revisions to some of its previous financial results following an internal review of accounting issues. The share price fell by 8.4% in premarket trading.
  • Jefferies Financial reported earnings for its fiscal first quarter below analysts' expectations on Wednesday evening, as the New York bank lost money on an investment in the Weiss Multi-Strategy Advisers hedge fund, which has since been closed.
  • The Home Depot announced on Thursday the acquisition of building materials supplier SRS Distribution for $18.25 billion, including debt. The deal will enable the DIY chain to strengthen its position with professional customers at a time when the sector is facing sluggish demand.
  • UnitedHealth Group announced on Wednesday that it was offering more than $3.3 billion in loans to healthcare providers affected by a cyberattack on its technology division last month.
  • Rumble loses 4.7% in premarket trading after reporting quarterly sales below analysts' forecasts.
  • Reddit falls 5% in pre-market trading after plunging 11.3% on Wednesday, a week after its New York debut.

Analyst recommendations:

  • Apple Inc.: DZ Bank AG Research downgrades to hold from buy with a price target reduced from USD 210 to USD 180.
  • Bank Of America Corporation: HSBC downgrades to hold from buy with a price target raised from USD 38 to USD 39.
  • General Mills, Inc.: President Capital Management Corp downgrades to neutral from buy with a target price of USD 72.
  • Hubbell Incorporated: Cowen upgrades to buy from outperform with a price target raised from USD 370 to USD 455.
  • Omnicom Group., Inc.: BNP Paribas Exane upgrades to outperform from neutral with a price target raised from USD 91 to USD 115.
  • Pnc Financial Services Group, Inc.: HSBC upgrades to hold from reduce with a price target raised from USD 141 to USD 155.
  • Public Storage: Raymond James upgrades to strong buy from market perform with a target price of USD 330.
  • The Allstate Corporation: HSBC upgrades to buy from hold with a price target raised from USD 158 to USD 190.
  • United Parcel Service Inc.: Cowen downgrades to hold from market perform with a price target reduced from USD 147 to USD 140.
  • Us Bancorp: HSBC upgrades to buy from hold with a price target raised from USD 47 to USD 53.
  • Cintas Corporation: Jefferies maintains its hold recommendation with a price target raised from USD 554 to USD 665.
  • Freeport-Mcmoran Inc.: Morgan Stanley maintains its market weight recommendation and raises the target price from USD 37 to USD 49.50.
  • Old Dominion Freight Line, Inc.: Goldman Sachs maintains a neutral recommendation with a price target reduced from USD 444 to USD 222. Morgan Stanley maintains its market weight recommendation and reduces the target price from USD 360 to USD 180.
  • Croda International Plc: Goldman Sachs drops coverage and changes recommendation to neutral with a target price of GBX 5100.
  • Imperial Oil Limited: BMO Capital Markets maintains its outperform rating and raises the target price from CAD 95 to CAD 115.