Low VIX readings can signal lower average stock returns

  • Wall Street’s fear gauge, the VIX, drops below 13
  • Low VIX readings can signal lower average stock returns
  • Stock market performance driven by bond yields and Fed’s interest rate moves
  • When VIX is in the lowest five percentile range, S&P 500 returns average almost 7% a year later
  • When VIX is near two-year highs, forward one-year returns average 13.8%
  • Low VIX readings can also indicate dangerous market complacency

Wall Street’s fear gauge, the Cboe Volatility Index (VIX), has dropped below 13, reaching its lowest level since before the COVID crisis. Low VIX readings are generally interpreted as positive for stock market returns. However, recent stock market performance has been driven by bond yields and expectations about the Federal Reserve’s next moves on interest rates. According to Bespoke Investment Group, when the VIX is in the lowest five percentile range, relative to its two-year range, the average returns for the S&P 500 a year later are almost 7%. On the other hand, when the VIX is near its two-year highs, forward one-year returns average 13.8%. It’s important to note that low VIX readings can also indicate dangerous levels of market complacency. Overall, the variance of returns following periods of high VIX readings has been significantly greater than the variance of returns following low readings.

Public Companies: Cboe Volatility Index (VIX), Bespoke Investment Group (null), S&P 500 index (SPX), FactSet (null)
Private Companies:
Key People:

Track all markets on TradingView

Factuality Level: 7
Justification: The article provides information about the current level of the Cboe Volatility Index (VIX) and its implications for stock-market returns. It also includes historical data and analysis from Bespoke Investment Group. However, the article lacks in-depth analysis and context, and it does not provide a comprehensive view of the factors influencing stock market performance.

Noise Level: 3
Justification: The article provides information about the current level of the VIX and its historical relationship with stock market returns. It also mentions the impact of bond yields and the Federal Reserve’s actions on stock market performance. However, the article lacks depth and analysis, and it does not provide actionable insights or solutions. It also includes irrelevant information about text-to-speech technology and a request for feedback.

Financial Relevance: Yes
Financial Markets Impacted: The article discusses the Cboe Volatility Index (VIX), which is a gauge of expected stock-market volatility. It mentions the impact of VIX readings on stock-market returns and the influence of bond yields on stock market performance.

Presence of Extreme Event: No
Nature of Extreme Event: No
Impact Rating of the Extreme Event: No
Justification: The article primarily focuses on the VIX and its impact on stock-market returns, without mentioning any extreme events or their impact. Therefore, there is no extreme event to rate.

Reported publicly: www.marketwatch.com