Stocks have been moving more than usual after earnings. Here’s what it could mean.

But while the CBOE Volatility Index
VIX,
known as the market’s fear gauge, has fallen sharply from a year ago, it rose on Friday, and has been trending higher the past couple months, along with the S&P 500.

It’s like the higher the market goes, the more skeptical Wall Street becomes. And that’s adding to investors’ jitters when a company reports something unexpected, even if it’s good news.

“We’re climbing a wall of worry. There’s more worry than there should be given what the market is doing,” said Matt Amberson, principal at Option Research & Technology Services.

On Monday, the S&P 500 was little changed in morning trading, but the VIX climbed more than 4%.

Amberson said investors are still very concerned about the economy and about the uncertainty surrounding interest rates, which is resulting in a lot of uncertainty about company earnings.

“This is one of the biggest earnings movers for stocks that I can remember,” Amberson said.

After about two-thirds of the S&P 500 index companies had reported fourth-quarter results, the average one-day post-earnings move, in either direction, has been 4.6%, according to Dow Jones Market Data. That’s above the one-year average of 4.3%, and five-year average of 4% and the 10-year average of 3.7%.

And the bigger-than-usual stock moves haven’t only involved the less liquid shares of the companies with smaller market capitalizations. The recent phenomenon has been true for even the technology behemoths with trillion-dollar market caps.

“It’s definitely strange,” said Michael Urbik, president of financial management firm Hinsdale Associates Inc. and a 40-year veteran of the money management business. “Anybody who says it isn’t hasn’t been in this game as long as I have.”

It’s been so strange, that the options market, which acts like the Las Vegas odds makers for Wall Street, has been way off in setting over-under betting lines for post-earnings stock moves.

A straddle option strategy is a pure volatility play — not directional — that involves the simultaneous buying of bullish (call) and bearish (put) options with the same current (at-the-money) strike prices. Buying a straddle is a bet that a stock will move more than what the options market has priced, through calculations of implied volatility, historical data and time. (Read more about straddles.)

Like Vegas, the options market has historically been excellent in pricing straddles, by making them attractive enough to entice investors but at parameters just wide enough that buyers most often lose money.

As Amberson explained, the average post-earnings stock move has been about 98% of what the straddles have priced.

But through Friday, that number has been 129%, and has been above 100% every week since earnings season started during the week ended Jan. 12.

“You have [overall] volatility that is fairly low, and still people are jittery, especially about the future outlook,” ORATS’ Amberson said.

What could this mean about the outlook for the stock market?

As the chart above shows, the last time the S&P 500 and VIX trended higher at the same time was last summer. The S&P 500 then suffered a short-term, three-month pullback through October in which it fell 8.6%.

Could the market be set up for a similar reaction this spring?

Craig Johnson, chief market technician for Piper Sandler, noted that as the S&P 500 has climbed to new highs, the percentage of the index’s stock that has also reached fresh highs hasn’t changed recently. That suggests participation in the rally, or breadth, has been declining.

And that leads him to believe the market is set up for a “meaningful” pullback, like the one seen last fall.

“To be clear, we are not bearish on the stock market,” Craig Johnson wrote in a note to clients. “However, as ‘bad breadth’ lingers, the market is ripe for a healthy correction, likely in the range of 5% to 10%.”