For a quick reflection of how much uncertainty is currently priced into the stock market, it just takes a glance at one key indicator. Known as the “fear gauge,” the Cboe Volatility Index ($VIX) measures how much volatility premium investors are willing to pay for short-term S&P 500 Index ($SPX) options. In the simplest terms, a low VIX is generally associated with bullish price action for stocks and relatively low volatility, while a high VIX tends to correlate with rising uncertainty and bigger, more drastic day-to-day price swings.
As markets weighed the pile-on of higher unemployment, the unwinding of the yen carry trade, and the revived probability of a recession, the VIX this week reached its highest levels since March 2020, at the onset of the COVID-19 market crash. At its peak on Monday, the VIX hit a 3-year high of 65.73 - and while it's since pulled back, the VIX still finished Wednesday's trading at historically elevated levels above 27.
