These charts offer hints on what’s next for market volatility after a stormy March
Seasoned investors know that when the S & P 500 (SPX) experiences big declines, it coincides with spikes in the Cboe Volatility Index (VIX) . Over the long term, neither consistently leads the other — that relationship is well understood. What’s far less clear is how much the VIX actually needs to rise before volatility begins to peter out. More importantly, how do we really know that the market’s character has flipped back to positive from a decidedly negative and bearish trading environment? We’re breaking this down, along with another metric we use at CappThesis that, in our opinion, does a much better job of capturing true two-way volatility, rather than focusing solely on the VIX, which spikes only to downside pressure. First, here’s a long-term chart that looks at the largest trough-to-peak VIX moves since 2007. There have been 12 instances where the VIX gained at least 100% from its intraday low to high. The current move — up approximately 165% from the late December low to the recent high — now joins that group. VIX – biggest trough-to-peak % moves since 2007: At least +100%: 12 At least +200%: 9 At least +300%: 6 At least +400%: 4 At least +500%: 2 At least +600% 1 The two largest spikes, not surprisingly, occurred during 2007–2008 (+820%) and the Covid crash (+660%). There are two very important takeaways: The current VIX move could still extend further from here. A bear market does not require an extreme 500% to 600% surge. In 2022, the VIX rose roughly 180% all in, which only is modestly more than the current move. Yet, the SPX continued to sell off for over 10 months before the low was etched. In other words, we never saw true capitulation like we last saw in 2020. This is why volatility should always be viewed alongside the frequency of absolute 1% SPX moves. Sticking with 2022, even though the VIX never reached 40, the S & P 500’s daily moves were constantly elevated. As this table shows, there were at least nine absolute 1% moves every month in 2022, totaling nearly 130 for the year — an exceptionally high amount. As we know, the largest daily gains and most frequent outsized advances occur in reaction to sharp declines. In other words, regardless of what the VIX is doing, a high frequency of large daily moves signals an erratic trading environment. That’s not conducive to bullish patterns seeing successful breakouts. Thus, it becomes extremely difficult for a sustainable uptrend to take hold. That dynamic continued into the first quarter of 2023. But as the first quarter ended and the second began, those 1% moves largely disappeared, and a more stable uptrend emerged that ultimately extended for months. That brings us to the current environment. March just wrapped up with nine 1% moves — six declines and three gains — the most since last March and April (12 each). The key distinction, however, is that in 2025, elevated volatility was short-lived — lasting just those two months — before completely reversing, with May marking the start of one of the most consistent uptrends in years. So here we are again. We’ve had one rough month, and naturally comparisons are being drawn to both 2025 and 2022. On one hand, the “shock then recovery” framework from last year is in play. But with rising crude oil and persistent inflation pressures in the news, there’s also an echo of the 2022 backdrop. Both scenarios remain viable. Rather than guessing, the focus should stay on the price action within the SPX: Continued erratic, high-frequency 1% moves would argue for a more prolonged volatile regime (closer to 2022). A sharp drop-off in large daily moves, followed by constructive follow-through and successful bullish patterns, would point toward a transition back to an uptrend (closer to 2025). We’ll see in it in the daily price action first, then in the bullish patterns and finally in the trend. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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