The VIX has recovered, but is Wall Street’s ‘fear gauge’ useful?

A man on the floor of the New York Stock Exchange looks intently at his screen with his mouth open and glasses pushed onto his forehead. (Credit: Michael M. Santiago—Getty Images)

August has been a helter-skelter month for markets. Look no further than the CBOE Volatility Index (or VIX), a measure of volatility popularly known as Wall Street’s “fear gauge,” which surged at the height of the meltdown earlier in the month. On Aug. 5, the volatility index peaked above 65, its highest level since the onset of the COVID-19 pandemic and a mark hit only a few times this century.

The VIX soon recovered at record speed, however, plummeting over 50 points in a matter of weeks as markets stormed back to erase their losses. The index currently sits around 17, below its long-term average of 20, traditionally interpreted as a signal that investors are relatively calm.