The CBOE Volatility Index, also known as the “fear gauge,” has spiked over the last few days, raising investor concerns about the direction in which the stock market is headed. These analysts identify historical patterns of the VIX spike similar to the Global Financial Crisis and the COVID-19 pandemic.
What Happened: The VIX closed at 45.31 on Monday and ended Tuesday at the 46.98 level. This marked a rare two-day close over the 45+ level as highlighted by Bill Luby, the former CIO at Luby Asset Management LLC.
According to Luby, the index hasn’t closed above this level for two consecutive days since the Great Financial Crisis of 2008-09 and the COVID-19 pandemic of 2020.
Moreover, the gauge has risen by 118% over the last three sessions, which marks the fifth-highest three-day spike for the index.
The biggest three-day spike witnessed by the VIX index stood at 176% back in February 2018. This was followed by a 5.4% gain in the S&P 500 index after one year and 70.6% of returns after five years.
Similarly, according to the data shared by Charlie Bilello, the chief market strategist at Creative Planning, the second-highest three-day VIX spike of 167% happened in August 2015, which led to 98.6% of gains in the S&P 500 index after five years.
“Stocks have tended to bounce back with above-average returns over the next 1-5 years. High volatility/fear = opportunity,” said Billelo in an X post.
Jason Goepfert, a consultant at the White Oak Consultancy LLC, highlighted a contradictory pattern where the S&P 500 rises after the VIX index hits the 45+ level for the first time in a month.
“A spike above 45 in the $VIX has generally been a pretty good panic-clearing signal,” he said. However, Goepfert clarified that the data may be less accurate before times when VIX futures traded.
Why It Matters: The stock market ended Monday on a mixed note after a volatile session of gains and losses. This was fueled by the news that Trump was weighing a three-month delay on tariffs. However, the White House dismissed it as fake news, and the indices sank again.
As of Tuesday, the S&P 500 was 17.65% below its previous record high of 6,147.43 points. The Nasdaq 100 continued to hover in the bear market territory, 21.56% lower from its previous high of 22,222.61 points. The Dow Jones, on the other hand, was down by 15.77% from its 52-week high of 45,073.63 points.
The market selloff intensified after President Donald Trump introduced tariffs on all U.S. trading partners and announced higher tariffs for the so-called “bad actors” on Wednesday last week. The markets fell for two consecutive sessions on Thursday and Friday following the policy announcements and closed mixed on Monday.
The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, were mixed on Monday. The SPY was down 0.18% to $504.38, while the QQQ advanced 0.24% to $423.69, according to Benzinga Pro data.
On Tuesday, the futures of Dow Jones were up 1.59%, whereas the S&P 500 and Nasdaq 100 indices rose 1.25% and 1.03%, respectively.
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