Wall Street’s ‘fear gauge’ says there’s nothing to fear
The Street might have gotten another all-clear signal to keep buying. The Cboe Volatility Index (VIX) , known to many as Wall Street’s fear gauge, had its lowest close of the year on Wednesday, ending the day at 14.49. That was its lowest closing level since late December. The VIX measure is calculated through the pricing of S & P 500 options. When the VIX is elevated, it signals investors expect the broader market to see wilder swings over the next 30 days. When it declines, it usually points to smoother sailing ahead for the market — which often sets up stocks for a move higher. .VIX YTD bar VIX year to date What’s driving this latest move lower in the VIX? Expectations of Federal Reserve rate cuts have a lot to do with it. The CME Group’s FedWatch tool points to a 96.5% chance that the central bank will cut its overnight rate next month. Traders are also pricing in two more rate cuts after that. That’s not only assuaged investor concerns, as reflected by the VIX; it’s also reawakened “animal spirits” on the Street. Goldman Sachs this week advised clients to buy call options on stocks with high retail participation, some of which can be categorized as “meme stocks.” The presence of these animal spirits was also shown in Paramount Skydance . The stock on Wednesday had its best day ever, soaring 37%. There was no obvious catalyst for the move, yet the movie studio and CBS television parent had its biggest volume day since March 2021, with some 133.7 million shares traded. PSKY 5D mountain PSKY 5-day chart To be sure, contrarians will argue this is the calm before the storm. Before this week, the VIX had only closed below 15 three times this year. One of those instances was on Feb. 14. The S & P 500 closed at 6,144 on Feb. 19, a record at the time. What ensued in the weeks ahead was a sell-off that nearly knocked the benchmark index into a bear market. Andrew Brenner of NatAlliance Securities also noted that commodity trading advisors, or CTAs, who bet on broad market trends, are “at the 94% Percentile of being long equities.” “With everyone near all in, who is left to buy?” Correction: This article has been updated to correct when the VIX closed below 15 prior to this week.
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