Are you familiar with the VIX Index?
VIX is the CBOE Volatility Index, and it measures expected “volatility based on S&P 500 index options” over a 30-day period. When the VIX Index rises, volatility is increasing, and the stock market is less predictable. When volatility is above its usual levels, we can expect a wider range of highs and lows.
It probably comes as no surprise that volatility is currently high. In fact, the spike at the beginning of August was the highest VIX has reached since the early days of the COVID-19 pandemic in March of 2020. This spike came during a massive sell-off, and the majority of investors suffered losses on that day, but there’s a silver lining.
There are two pieces of good news:
- The sell-off only came after the market had recently reached new all-time highs.
- After the spike, the S&P 500 went on an 8-day winning streak that brought it back into overbought territory.
Volatility comes with positives and negatives for all investors, and it can signal brighter or darker days are ahead.
So with volatility rising, can we expect a repeat of 2000, 2008, or 2020? Is a recession right around the corner?
Even the world’s greatest economists and analysts aren’t certain if we will slip into a recession, but what we do know for now is that the economy continues to grow. Although the economy is growing at a slower rate than in the recent past, a recession doesn’t appear to be imminent. However, being mindful of volatility can help explain massive swings in short-term trading.