This week’s chart highlights a significant milestone for stock investors: the VIX Index is back to pre-pandemic lows.
The VIX, often called the “fear gauge,” measures market volatility implied from S&P 500 options. When it rises, it means investors expect higher stock market volatility in the future.
As you can see on the chart, it tends to spike during times of stress, like during the 2020 Covid Crisis. However, after a bit of stress in 2022, we’ve seen the VIX fall dramatically. This week, it fell below 12 for the first time since November 2019.
This signals a significant shift in investor sentiment. Lower implied volatility tends to coincide with more stable market environments. It also suggests that stock investors feel pretty confident about the economy and financial markets right now.
A word of caution, however: extremely low VIX levels can also breed complacency and might even push investors to take on additional risks as they seek higher returns. This could be bad if it leads investors to underestimate potential risks.
In other words, extremely low VIX levels are a bit of a mixed bag. But, for the most part, it indicates a return to a more stable market environment—and that is likely a good thing for stock investors in the near term.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.
The VIX Index, also known as the CBOE Volatility Index, measures the stock market’s expectation of volatility based on S&P 500 index options.