By Gunjan Banerji

Optimism about the economy is sweeping markets from stocks to bonds and options.

The S&P 500 clinched a fresh high Tuesday. Bonds have been on a tear, with yields on the riskiest corporate bonds falling to some of the lowest levels since 2022. And a measure of stock-market volatility has slumped, reversing a late-summer jump that alarmed investors across Wall Street.

The Cboe Volatility Index fell to 15.42 Tuesday, on track to close at the lowest level of the month. It's a sign that investors are positioning for more calm ahead and backing away from options trades that would profit if turbulence picked up.

Many investors expect the record run in stocks to continue and have adopted a sunnier outlook on stocks in recent months (read more about that here). The Federal Reserve's move to cut interest rates by half a percentage point at its latest meeting has turbocharged the enthusiasm, driving the latest leg of the stock rally.

Shares of companies that are particularly sensitive to the economy's ups and downs have outperformed this week. The S&P 500's energy and materials sectors are up 1% and 2.2%, respectively, this week, while the S&P 500 has edged up 0.5%.

A survey by Vanguard showed that, by one measure, individuals have rarely been this sanguine about the market. Investors' expectations of annual stock-market returns over the next decade touched 7.9% in August, the highest level ever, according to the brokerage and fund manager.

"Long-run expectations reached new heights while short-run expectations held steady, suggesting that investors are as confident as ever," wrote Xiao Xu, an analyst at Vanguard's investment strategy group.

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(END) Dow Jones Newswires

September 24, 2024 16:23 ET (20:23 GMT)

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