MW Wall Street's fear gauge just flashed an unusual signal that could carry the S&P 500 to 7,400 within months
By Jamie Chisholm
The falling VIX is a third sign that the bottom for stocks is in, says Fundstrat's Tom Lee
The Cboe Volatility Index - known as the fear gauge - has dived in a sign of growing calm among investors in the U.S. stock market.
U.S. crude-oil futures sit near a hundred bucks per barrel, and the cease-fire between the U.S. and Israel and adversary Iran seems very fragile with ships still mostly being prevented from traversing the Strait of Hormuz.
And yet the S&P 500 SPX has just registered a seven-day winning streak, rallying 7.6% in the process, to leave the Wall Street stock barometer only 2.2% below the record closing high hit toward the end of January.
The bulls are chipper. Earlier this week, Tom Lee, head of research at Fundstrat, said the two-week truce agreed between Washington and Tehran late Tuesday meant "the bottom is in" for the stock market.
And in a new bulletin published late Thursday, Lee appears even more comfortable in his bullish stance as he notes that the sharp fall in the Cboe Volatility Index VIX represents a third sign that last week's trough for equities marks the end of the pullback.
The volatility index, or VIX, is an options-derived measure of expected S&P 500 volatility that usually jumps when stocks take a dive, and has thus become known as Wall Street's fear gauge.
Lee observes that the VIX closed below 20 on Thursday for the first time since the war began, having surged to close above 30 in March. "In our view, this is now the 3rd sign confirming the bottom is in," he says.
The first of these signs was that stocks had already started to rise on "bad news," says Lee. The recent rally began days before the cease-fire agreement during which there was also evidence that higher oil prices were having a less damaging impact on equities. "Correlations flipped," he says, and "while oil rose, [the] S&P 500 rose from 6,300 to 6,600."
The second sign of a bottom was that the war - though its future path is uncertain - has become "less bad," and, in terms of market psychology, that's "good news."
And now the retreat in the VIX is evidence that investors' moves to seek protection via options has peaked, Lee says. Indeed, recent history shows that the VIX's recent slide, combined with a sharp fall in oil prices, is particularly positive for stocks.
Since 1990, says Lee, there have been four instances in which the following sequence occurred: The VIX closed above 30, oil then fell more than 15% and the VIX then closed below 20.
Using the VIX's sub-20 close as a date, those occasions were Feb. 15, 1991; March 1, 2002; May 9, 2003; and Feb. 12, 2021. The median forward gains for stocks for those occasions is 1.3% over one month, 2.6% over three months and 9.2% over six months, Lee calculates.
"The 6-month median return implies the S&P 500 could reach 7,400," says Lee, referring to that 9.2% historical upward move. "This would be consistent with our view that equities could reach 7,300 before a larger drawdown takes place."
Because Lee thinks the "war bottom" is in, he is less upbeat about the energy XLE and materials sectors XLB, moving them from top pick to fifth favorite. His top four stock sectors in descending order are now the Magnificent Seven MAGS, industrials XLI, financials XLF KRE and small caps IWM.
The markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are mixed as benchmark Treasury yields BX:TMUBMUSD10Y nudge higher. The dollar index DXY is up, while oil prices (CL.1) pull back from session highs and gold futures (GC00) are trading around $4,768 an ounce.
Key asset performance Last 5d 1m YTD 1y S&P 500 6782.81 3.16% 0.10% -0.92% 24.30% Nasdaq Composite 22,635.00 3.64% -0.36% -2.61% 32.18% 10-year Treasury 4.289 -2.20 2.00 11.70 -14.70 Gold 4756.6 1.15% -6.44% 9.80% 48.91% Oil 97.36 -13.12% 1.00% 69.59% 61.62% Data: MarketWatch. Treasury yields change expressed in basis points
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The buzz
The cease-fire remains fragile after U.S. President Donald Trump told Tehran to stop charging for ships to travel though the Strait of Hormuz.
The White House last month warned staff not to place bets on prediction markets amid the Iran war, according to the Wall Street Journal.
The U.S. consumer-price index for March will be published at 8:30 a.m. Eastern time. Economists expect the headline annual rate to rise to 3.3% from 2.4% in February.
Other U.S. economic data due Friday include the 10 a.m. release of February factory orders and April consumer sentiment.
The U.S. Justice Department has opened an investigation into whether the NFL has engaged in anticompetitive tactics, according to the Wall Street Journal.
China's factory-gate prices exited deflation for the first time in more than three years, partly the result of higher energy costs caused by the Iran war.
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The chart
Source: Macro Charts from Ryan Detrick
It's easy to forget given recent volatility, but the S&P 500 had already turned down notably from its record high by the time the Iran war began at the end of February. And that building caution - and the more intense conflict-angst that followed - is captured in the chart of three-month rolling flows into money-market and cashlike ETFs provided by Ryan Detrick. In a post on X, the chief market strategist at Carson Group said the Macro Charts image shows, "On a relatively normal 9% mild pullback we saw fear levels consistent with bear markets and 100-year pandemics."
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Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Micron Technology Security name NVDA Nvidia TSLA Tesla AMZN Amazon.com TSM Taiwan Semiconductor Manufacturing GME GameStop PLTR Palantir Technologies AMD Advanced Micro Devices MU Micro Technology MSFT Microsoft AAPL Apple
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BEYOND THE NEWSROOM
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April 10, 2026 07:29 ET (11:29 GMT)
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