Wall Street’s fear gauge is close to signaling a bear market, says DataTrek Research
Wall Street’s fear gauge is close to signaling a bear market, according to DataTrek Research. The CBOE Volatility Index topped the 29 level on Thursday in a sign the stock sell-off will continue unless volatility abates from here. Typically, a reading above 20 indicates elevated fear and uncertainty in the market, according to Nicholas Colas, the firm’s co-founder. “The CBOE Volatility (VIX) Index is on the verge of signaling an outright bear market in US stocks, implying further downside from even tonight’s post-tariff announcement levels,” said Colas in a note to clients. “All is not lost, but volatility needs to decline quickly from here.” Stocks sold off Thursday after President Donald Trump’s tariffs spurred fears of a global trade war that could possibly tip the U.S. into a recession. The Dow Jones Industrial Average was last lower by more than 1,300 points. The S & P 500 dropped 4%, while the Nasdaq Composite was off by 5%. But if market volatility continues to climb, it will have a “deeply corrosive” effect on investor confidence that could lead to a bear market, Colas said. A bear market occurs when a stock index falls more than 20% from a recent peak. The S & P 500 tipped back into correction territory, off more than 11%. The Nasdaq Composite is more than 17% off its record high. .VIX 5D mountain CBOE Volatility Index Colas hopes the VIX will soon top 35.1, which historically has meant the stock market could bottom soon after. Since October 2022, the VIX has only neared or topped that level twice, on Oct. 11, 2022, and Aug. 5, 2024. The stock market rebounded afterward both times. Investors could also consider buying when the VIX closes above 27.3, as the S & P 500 could bottom shortly afterward, Colas said. On March 10, the VIX closed at 27.9, and the broader index bottomed two days later and rallied 4.6% over the next eight trading days. “The VIX is on the verge of signaling a bear market for US stocks, and volatility needs to decline quickly to avert that outcome,” Colas said. “In many ways, we hope the VIX does soon breach 35.1, because it is only that level that consistently draws a policy response,” Colas said. “The risk to stock prices is that volatility remains only somewhat elevated for weeks to come rather than peaking at historically very high levels (VIX +35) and then declining from there.” Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange!| Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!
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