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Traders work after the opening bell at the New York Stock Exchange on July 16. Photo: Johannes Eiselle /AFP/Getty Images

The stock market has been unusually calm this year, prompting traders to place increasingly large bets on low market volatility — but they could be setting themselves and the broader market up for big losses.

What's happening: The S&P 500 hasn't moved more than 1% in either direction in more than 5 weeks, according to Datatrek co-founder Nicholas Colas. That defies historical trends and is leading more investors to take short-sell bets that the Cboe Volatility Index (VIX), which tracks big, unexpected moves in the market, will decline.

  • The latest CFTC data shows speculators' short bets against the VIX outnumber longs nearly 2.5 to 1.

Why it matters: The big losses triggered in short-volatility trading instruments helped lead to the stock market selloff in December that pushed the Dow and S&P 500 to their worst December since 1931.

Threat level: With the Fed expected to cut interest rates this month and at least once more in 2019, central banks around the globe have initiated a cycle of easy monetary policy, increasing liquidity in capital markets.

  • That's underpinning expectations of a low volatility that could easily unwind given the uncertainty of the U.S.-China trade war, weak earnings expectations, declining global growth and rising geopolitical tensions in the Middle East and Asia.

The big picture: Investors raised short volatility bets to the highest level in 6 years in April, according to analysts from Nordea Bank, who spoke to Refinitiv's IFR.

  • June and July's unprecedented market calm have again whet investor appetite for the products in what has so far been a summer of very low volume trading.
  • However, low trading volume can mean big trades move a market significantly, spiking volatility and triggering potentially massive losses.

What to watch: "It's a worrying sign," Andreas Steno Larsen, senior global strategist at Nordea told IFR.

  • "The interest is definitely there broadly speaking across asset classes. I consider that a natural result of the U-turn we've gotten from central banks."

Yes, but: Larsen made the comments in April and the market has continued to rise — and VIX has continued to fall — since then.

Go deeper: Millions of Americans make 5x leveraged bets on their homes

Go deeper

CDC prepares tougher testing rules for international travelers

Travelers with their luggage arrive at a COVID-19 testing location at the airport in Los Angeles, Calif., on Nov. 23, 2021. Photo: Frederic J. Brown/AFP via Getty Images

The Centers for Disease Control and Prevention said Tuesday night that it is working to impose stricter testing requirements for international travelers due to the spread of the new Omicron variant.

The big picture: The new rules would require all international travelers, regardless of vaccination status, to show a negative test taken a day before their flight to the U.S. Currently, the CDC says fully vaccinated travelers are allowed to show a test taken no more than three days before their departure, AP reports.

Republicans threaten to shut down government over vaccine mandates

Sen. Mike Lee (R-Utah) in the Capitol in November 2020. Photo: Joshua Roberts/Getty Images

Conservative Republicans in the House and Senate are planning to force a government shutdown Friday to deny funding needed to enforce the Biden administration's vaccine mandates on the private sector, according to Politico.

Why it matters: Congress has until the end of the week to pass a stopgap measure to extend funding into 2022, though objection from a small group of Republicans could shut down the government.

Electric car prices could go up before they come down

Illustration: Eniola Odetunde/Axios

The secret to affordable electric vehicles is cheaper batteries. But after years of falling prices, battery costs are now headed in the wrong direction.

Why it matters: Costlier batteries could drive up the price of electric vehicles — threatening the auto industry's transition away from fossil fuels, and, in turn, society's fight against climate change.