GOLDMAN SACHS SAYS WALL STREET’S FEAR GAUGE FLASHES WARNING SIGN
Goldman Sachs said Wall Street's most popular fear gauge is flashing a warning sign not seen since the bursting of the dot-com bubble in 2000, Shalini Nagarajan reported for BusinessInsider on September 8, 2020.
Normally, when the stock market rises, volatility tends to subside. But Goldman said this pattern has been upended, as both the S&P 500 and the VIX index have currently hit record peaks in correlation to each other.
Strong volatility in tech stocks and investor concerns over the US election results are key factors pushing the volatility index higher, analysts wrote in a note dated September 3. "US equity markets have shown a strong 'vol up, spot up' pattern driven by single stock markets but influencing the VIX," they said.
The CBOE Volatility Index, also known as the VIX, is the market's best indicator of expected volatility in the next 30 days. When the stock market rises, ordinarily the index declines, and vice versa. A market that is steadily rising or falling has low volatility, but one in which rapid rises and falls follow in quick succession shows high volatility. A reading below 20% for the VIX means that the market is operating in a low-risk environment, while above 20 shows fear is picking up. A reading above 30 reflects heightened volatility.