Moves in the Fear Gauge Look Good for U.S. Stocks, Sundial Says
Sundial looked at about 30 instances from 1998 onward when the S&P 500 fell 2.4% or more and the VIX gained less than 8%.
(Bloomberg) -- The moves in the Cboe Volatility Index are looking positive for U.S. stocks right now, according to Sundial Capital Research Inc.
On Friday, the S&P 500 fell 2.4%, but the VIX rose only 7.8%, a relatively small gain in the volatility gauge given the outsized move in stocks. When the S&P first starts to drop, even a decline of 1.5% or so can lead to a jump of 20% or more in the VIX, Sundial’s Jason Goepfert wrote in a note June 27, citing his colleague Troy Bombardia. As corrections or bear markets continue, large tumbles in the equity gauge elicit relatively smaller increases in the VIX, he said.
“Historically this usually happened in the later stages of a correction/bear market. As a result, the S&P’s returns over the next few weeks and months were more bullish than random,” Sundial said.
Sundial looked at about 30 instances from 1998 onward when the S&P 500 fell 2.4% or more and the VIX gained less than 8% while above 30. The S&P 500 was positive three months later 73% of the time, with a median gain of 8.1%. After a year, the equity benchmark was up 88% of the time with a median 26% rise.
The VIX, which has a lifetime average of about 19.4, has remained stuck above 20 since late February, with the coronavirus injecting massive uncertainty into economies and markets. The gauge topped out above 85 intraday on March 18, nearly reaching its Global Financial Crisis record high. It closed on June 26 at 34.73.
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