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What can the VIX tell us about the markets and economy?

What can the VIX tell us about the markets and economy?

April 25, 2023

The stock market was quiet last week as investors took a breather before major corporate earnings are released this week and into next month. Earnings will likely be the major driver of stock prices over the coming weeks.

The quiet market has also brought much lower volatility. The CBOE Volatility Index (VIX) is a popular measure of the market’s expectation of volatility for the following 30 days, or how fast prices will change. It’s commonly referred to as the fear index because volatility spikes during tumultuous economic times and drops when the economy is stable. The market is experiencing the lowest volatility we’ve seen in 18 months and is close to pre-pandemic volatility levels. When put into perspective the lower volatility makes a lot of sense. In the past 3 years we’ve experienced a global upheaval, and the economic and social issues we are currently facing are greatly reduced from those of the spring of 2020, 2021, or 2022.

It’s a paradox that the media is still focused on negative economic news, while investors are betting on more positive economic times ahead. When there’s contradictory information, I always follow how investors are trading as opposed to how the media is reporting. High volatility was the norm for the past few years but hopefully the VIX is telling us we are headed for a quieter and more stable 2023 with positive market returns.

Photograph by: Michael Kroul on Unsplash´╗┐

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