MW The 'VIX' is on the verge of signaling a bear market for U.S. stocks, says DataTrek

By Jamie Chisholm

The Cboe Volatility Index, known commonly as Wall Street's fear gauge, was jumping early Thursday, as investor angst over U.S. President Donald Trump's tariff war pushed stock-index futures sharply lower.

But it's not so much the fresh lurch higher for the "VIX" that is a concern for Nicholas Colas, co-founder of DataTrek Research. Such spikes often signal buying opportunities for stocks, he observed.

What worries him is that, even before the latest bout of market anxiety, the index was running in recent weeks on average notably above its long-run trend, and that may spell danger for stocks.

'The risk to stock prices is that volatility remains only somewhat elevated for weeks to come rather than peaking at historically very high levels and then declining.'Nicholas Colas, DataTrek Research

"The VIX's 30-[day] average closing level as of today is 21.4, and that's an unhealthy sign," said Colas in a new note dated Thursday.

Since its launch in 1990, the VIX, which measures the expected volatility of the S&P 500 SPX, has averaged 19.5%, and Colas observed that it has generally run above that level during bear markets and below it during bull markets.

The VIX was up 21.7 to 26.5 on Thursday. Colas noted that one standard deviation above the long-run average of 19.5 takes the VIX to 27.3, and reaching that mark is often a good sign for investors to become bullish on stocks again.

"Despite all the turmoil this year, we've only had a single VIX close above that level (March 10th, at 27.9). The S&P 500 bottomed 2 days later (March 13th, at 5,522) and rallied 4.6 percent over the next 8 trading days," said Colas.

The next "buy" level is a VIX closing price of 35.1 or higher, two standard deviations above the long-run mean, according to Colas. And since the current bull market started in October 2022, the VIX has only approached or exceeded that level twice.

"The first was on October 11th 2022 (33.6), the S&P bottomed the next day, and the index was up 7 percent through year end. The second was on August 5th 2024 (38.6), and the S&P was up 13 percent through year end," Colas said.

However, the VIX has now been on average above the 19.5 level and in what Colas called "the danger zone" for 12 days. That may not be long, but "markets clearly need to show less volatility, and soon," he added.

"The VIX is on the verge of signaling a bear market for U.S. stocks, and volatility needs to decline quickly to avert that outcome," said Colas.

It may be better if the VIX swiftly jumped above 35.1, because it's that level that tends to elicit a policy response, he noted. "The risk to stock prices is that volatility remains only somewhat elevated for weeks to come rather than peaking at historically very high levels and then declining from there."

-Jamie Chisholm

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April 03, 2025 08:13 ET (12:13 GMT)

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