Karishma Vanjani
Wall Street's fear gauge has been above 20 -- a level associated with volatile markets and losses for shares -- for the past 11 trading days.
That highlights investors' concern that President Donald Trump's tariffs will ignite a global trade war, dragging the economy into a recession, while inflation remains stubborn and interest rates are still high. Yet it also indicates that Wall Street and the investing public aren't panicking.
The fear gauge, the VIX, measures the expected volatility in the S&P 500 over the next 30 days, derived from prices of options on the index. Stocks tend to fall when the VIX is high, while a low VIX implies that the market is expecting stability. Stocks then tend to rise.
So far in March, for the past 11 full trading days, the VIX has been above 20, a widely watched level seen as signaling rough waters could lie ahead. It was the first time the index remained above 20 for 11 straight days since March 2023.
The VIX closed Monday at 20.51, compared with its respective 10-year and 20-year averages of 18.30 and 19.21. Stocks have fallen 4.7% since the start of March.
"This tells us that market volatility is structurally higher than usual, " wrote Nicholas Colas, co-founder of DataTrek Research. A "prolonged period (months, not weeks) of an elevated VIX is a common sign of a bear market. We are not there yet, but a lower VIX would be a good sign."
The VIX's levels this month are nowhere near those seen in times of real market distress. In 2018, when the stock market fell 6%, the VIX hit 36.1 on Dec. 24, one of its highest levels for the year. It was only after that point that the market hit its bottom, Colas wrote. The S&P 500 rose 29% in 2019.
The VIX hit a similar high of 36.47 during the 1990-1991 recession. It has hit a high of more than 80 in the past two recessions. The average level during all of 2020, the year of the last recession, was 29.25.
Where the VIX Goes Next
Optimists can find solace in historical data. Over the past five years, once the VIX has closed above 20, it has taken an average of 13.8 trading days to close below 20 again, calculations by the Dow Jones Market Data team show. Over 10 years, the average is 9.8 trading days.
Strategists, however, expect the VIX to rise, suggesting a sustainable rally in the stock market won't happen soon.
"Realized equity vol has risen sharply but is not extreme and the implied vol premium in the VIX about average, leaving room for both to rise further, which would pressure systematic strategy positioning," wrote Desutche Bank's chief strategist Binky Chadha on Monday.
"Our sense is the market's near-term trend remains lower until more clarity emerges on the extent of tariffs with the April 2(nd) deadline not providing immediate clarity," Chris Senyek of Wolfe Research wrote. He cited the VIX, saying that while it has spiked, "we haven't seen true capitulation."
So-called true capitulation would mean widespread selling in stocks, and fear that more losses might follow, putting the market in a position where a rebound could take place.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 17, 2025 16:59 ET (20:59 GMT)
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