The VIX is a useful gauge of perceived stock market risk, and the lower its price, the better. Even though recent concerns about bank stocks are currently pushing the VIX higher, its price remains relatively low on a post-covid basis.
Commentary
- Looking at the market from just before the covid lockdowns to the end of April, we can observe an -81% drawdown from the VIX’s peak (see orange area chart at bottom). This reflects investor optimism over consumers that are employed & spending, with the possibility of an earnings rebound as inflation moderates & past price increases stick.
- Notably, the VIX has very recently ticked-up because of concerns about bank stocks. However, barring further bank problems, or saber-rattling from the hawks, the economy & markets may be set to finally begin recovering from the covid setback that has afflicted us for the last 3 years.
- We can also see from the chart below that the stock market took a pause (see purple line) while the Fed worked to restore interest rates to normal levels (investor-grade corporate bond yields have rebounded to a 5% level – see blue line below). With interest rate hikes perhaps pausing, this governor on the stock market also could be coming to an end.
