The CBOE Volatility Index peaked to over 20 for the first time since early February. Volatile action in US stocks is a sign of markets topping.
After three days of drastic Standard & Poor’s 500 Index swings the CBOE Volatility Index spiked up to 22.06 before pulling back to 18.96.
Despite the S&P 500 being up 3.1 percent for the year, the index is 5 percent lower than its record high reached in mid-September, closing this week at its lowest level since May. On Friday the index fell by 1.15% down to 1,906.13. The levels in the VIX are almost directly in line with volatility of the S&P 500.
There is still uncertainty about whether the weakness in equities will fade away in the span of a few days or continue to linger on.
Analysts say that what is driving the volatility are increasing concerns regarding the Fed’s stimulus ending and very weak global economic growth, particularly in the eurozone. In addition to oil prices slumping (a signal of poor demand).
The International Monetary Fund (IMF) recently downgraded its forecast for global growth and said the European Central Bank will have to do more stimulus to prevent deflation.
Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida, told Reuters:
“We’re still in a bull market, but in the near term things are a little bit dicey, and I don’t think the decline is over with yet,”
Peter Kenny, chief market strategist of Clearpool Group in New York, said:
“What is interesting about what is going on is that you have several themes all feeding into the same action, and that action is to mitigate risk,”
Jim McDonald, chief investment strategist at Chicago-based Northern Trust Asset Management, commented:
“The earnings reports from the U.S. should help put a bottom in the market and lead to some regained strength. We think we remain in good shape.”