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Volatility has returned to markets but it’s going to take a lot more jitters to derail this bull run.
Over the last two trading sessions, regional bank fears tied to Zions Bancorp and Western Alliance pushed the VIX — Wall Street’s fear gauge — as high as 28.99 for the first time since April’s Liberation Day sell-off.
That jump provided just the fodder bearish forecasters have been looking for to bolster their theories of bubbles and crashes.
Yet the index closed Friday at 20.78, within range of its long-run average. That only feels high because the VIX has hovered at a tepid 17 through most of the summer.
As it turns out, history suggests the momentary surge in volatility offers a point for the optimists.
Since the start of 2024, the S&P 500 has averaged a 2.2 percent gain the next month whenever the VIX rose above its long-term average of 19.5, according to DataTrek Research.
- Stocks have climbed at an 82 percent win rate with this indicator
- It was triggered each of the last two weeks
“The VIX is widely cited and closely watched because most traders know it has a good track record of signaling near term lows,” wrote DataTrek co-founders Nicholas Colas and Jessica Rabe in a recent note to clients, adding that they do not believe the recent move warrants concern about a weakening bull market.
CBOE launched the VIX index in 1990, and it’s closed at 19.5 on average over the last three decades.
- In bull markets, volatility is usually below 19.5
- In bear markets, it’s usually above 19.5
As the DataTrek team and other market veterans have pointed out, heightened volatility indeed often presents a buy-the-dip opportunity.
Here’s the VIX chart again, highlighting a range of closing levels from the last 12 months.
When you compare that to the S&P 500 over the last year, the spikes in volatility indeed have marked local bottoms for stocks.
The above and below charts are nearly inverted mirror images.
None of the above is likely to placate the bears, who will point to heightened volatility as reason to brace for armageddon.
Phil Rosen
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