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-- 15.2600 Calm Before the Storm? Depressed VIX Might Be Awakened in August
Since June, the $CBOE Volatility S&P 500 Index (.VIX.US)$ has been hovering at lower levels, indicating unruffled market confidence. As of August 7th, the index was recorded at 15.77, slightly above the "irrational exuberance" level of 15. Some concerns are emerging that the present phase of market stability could be a harbinger of more tumultuous times, often referred to as "the calm before the storm.
The VIX index measures the implied volatility of options on the S&P 500 index, reflecting investors' expectations for future market changes. It is also referred to as the "fear index." Typically, when the VIX index surpasses 40, it signifies that the market is anticipating irrational panic in the near term; conversely, when the index is below 15, there may be an expectation of irrational exuberance.
Regarding seasonality, August and September usually experience the most significant increases in the VIX index. While history doesn't simply repeat itself, the current depressed VIX still has the potential to be disrupted in the next 1-2 months.
A low VIX can signify a reduced interest in market insurance, thereby revealing investor complacency. This implies that the market may encounter massive volatility if investors who are actively engaged in stock trading suddenly rush out of the market.
The VIX's put/call ratio is another indicator of the anticipation of higher volatility soon. Presently, this ratio stands at around 0.47, one of its lowest levels over the past three years. This suggests that investors are considerably more inclined to bet on the VIX rising than falling.
According to Charlie McElligott of Nomura, VIX is becoming "nervous and squeezy."
If we say that last Friday's payrolls print shook the day's VIX awake, it remains several factors to catalyze the further movement of VIX, such as 1) a possible rebound in inflation, 2) upward pressure on U.S. Treasury yields, 3) continuing fiscal challenges and increasing debt burden; 4) possible recession; 5) rising geopolitical risk.
Marko Kolanovic of J.P. Morgan global strategy team: "We remain of the view that the delayed impact of the global interest rate shock (real estate, consumer credit, quantitative tightening and liquidity, etc.), steady erosion of consumer savings and post COVID pent-up demand, and deeply troubling global geopolitical context will result in market declines and re-emergence of market volatility."
Scott Wren, chief global market strategist of Wells Fargo, warns about the looming threat of stubborn inflation. He believes that despite a decrease in inflation from its peak last year, there remains a significant risk that it may surge due to lingering economic pressures, such as a robust labor market. In the event that inflation surges and interest rates skyrocket, sectors that have been propelling the current stock market rally could experience abrupt declines. Wren advises caution as he believes that the risk-to-reward ratio of entering the market at present may not be advantageous.
Source： Bloomberg, Moomoo, Financial Times, Zerohedge, Investopedia, Ycharts
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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Jennzzzy : Towards the end of August is when I assume that there will be a rocket boost for many companies...it's just a feeling in the air that I am getting!
D Blaine : The month of September is, historically, the worst month for SP500 returns. Median return is -.08% back to 1928.