Another Parallel To The Financial Crisis, And What To Do About It

Stubbornly high stock market volatility means something. A closer look.

The stock market is volatile. Prices move up and down rapidly, even when they generally are moving up. The typical stock price probably moves more in percentage terms in one hour of trading than the yield you get on a Treasury Bill for a year. But you probably already knew that.

Wall Street has a formal way to measure volatility, through an index called the CBOE Volatility, or VIX. This measures the near-term (next 30 days) expected volatility of the stock market. Generally speaking, a very low level of the VIX is 1o, and it has hit the 70-80 range during a few very chaotic market periods.

When is the VIX a concern for investors?

When VIX is at 20 or above, it is generally considered a time of “high volatility” for stocks. And, VIX has been consistently at 20 or above recently.

In fact, VIX has been above 20 at the stock market close on every single trading day going back to February 24, 2020, just after the market peaked at the start of the Covid-19-induced decline.

That’s about 230 trading days. There has only been one other period since 2004 where that happened. That was from August of 2018 through December of 2009. So about 16 months straight.

This may not mean anything. But it is certainly something to watch closely in the weeks and months ahead. VIX is a classic stock market risk signal. So while prices continue to drift north, the risk that accompanies pursuit of further gains is still quite high.


During that 2008-2009 period where the VIX stayed above 20 for 16 months, the market hit its low in the 11th month of that time frame. We are in the 11th month the current elevated VIX streak, so the pattern is playing out differently.

VIX stays up…can the stock market?

What remains to be seen is how long VIX can stay high without the stock market reacting skittishly, and ultimately falling hard. That’s what a high VIX usually means.

But in the markets of today, with massive Fed money-printing and speculation running rabid, it remains to be seen if any of the traditional warning signs matter.

Comments provided are informational only, not individual investment advice or recommendations. Sungarden provides Advisory Services through Dynamic Wealth Advisors.

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