• VIX at high level during the banking crisis
• Expert speaks of abnormal volatility environment
• VIX falls – stock prices could rise
If investors are nervous, this is also noticeable on the stock markets. This nervousness about the US stock market can also be seen on the real-time volatility index VIX. Produced by the Chicago Board Options Exchange (CBOE), the index reflects market expectations for market volatility and shows the 30-day implied volatility of the broad US market index. Index options on the S&P 500 are used as the basis for the calculation, and the development of the VIX is used as an indicator for the probable development of the underlying index. A rising VIX value indicates that the S&P 500 is likely to fall. Meanwhile, if the VIX falls, the US index is likely to hold steady.
Barometer of fear high during banking crisis
At the beginning of March, when the first bad news from the banking sector came from the United States, the VIX shot up and was over 26 percent on March 13, 2023. On that day it was announced that US regulators had initiated emergency measures for Silicon Valley Bank and placed the institution under state control after an emergency capital increase failed.
In the days that followed, investors’ concerns about the banking crisis spreading remained high – as did the VIX, which remained constantly above 20 percent. Only the emergency takeover of the major Swiss bank Credit Suisse by UBS calmed the market and heralded a downward trend in the volatility index. At the same time, the S&P 500 also recovered from its losses, which had been significant in the meantime, and embarked on a recovery course.
Does the VIX development give hope for continued strong stock exchanges?
At the end of March, the VIX finally broke through the 20 percent mark again, which suggests that investors are becoming increasingly optimistic again and are no longer afraid of a global spread of the banking crisis. Investors are cautiously optimistic here. The VIX volatility index was last at 19.13 percent (closing price on April 11, 2023) – so the prospects for the US stock market are moderately good. Nevertheless, the fear index remains at a comparatively high level, as Johan Grahn, Head ETF Market Strategist at AllianzIM, emphasized to “MarketWatch”: “This is not a normal volatility environment,” said the expert. “We’ve spent 95% of trading days over 20 over the last 12 months, while in the 8 years prior to the onset of pandemic-related volatility in February 2020, we were over 20 just 15% of the time.” In the last twelve months, it has even exceeded the value of 30 percent on an average of one day in five. However, this was only the case for one in 100 days in the eight years before the pandemic. “Now we’re living in a time where that’s considered normal, but based on history, it’s not normal,” Grahn said.
Nevertheless, at least the downward trend of the VIX volatility index indicates which direction the broad US stock market could take in the coming weeks.
monetary policy as a crucial factor
In fact, however, it is likely to be the monetary policy of the central bank that is ultimately the decisive factor in the development of the share price. In view of the fact that the banking crisis was probably over, hopes of a slowdown in the rate hike cycle by the US central bank had also increased among market participants, and initial voices had even brought up a reduction in the key interest rate. This had recently supported the markets.
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