By Ian Salisbury

Stock market investors are getting nervous. While that usually provides a buying opportunity, they may want to wait a little longer before jumping in.

The market's mood continues to sour, shaken by weakening economic data and persistent fears of trade war. Shares sold off again Monday, with the S&P 500 falling another 2.4% in afternoon trading. Tech stocks, which drove 2024's market gains, recently entered correction territory, with the Nasdaq down about 13% from its December high.

At the same time, the Cboe Volatility Index, a measure of market volatility known as the stock market's "fear gauge," was spiking. The indicator, which spent much of January and February at or below its long-term average of about 19.5, leapt to 27.1 Monday.

An elevated VIX reading can provide a buying opportunity -- but we aren't quite there yet, suggests a note Friday from market researcher DataTrek.

The key VIX levels to watch for are 27.3 and 35.1, which represent one- and two-standard deviations from long-term average, according to DataTrek co-founder Nicholas Colas.

In general, statistics rules suggest about two-thirds of results in a data set should fall within one standard deviation of the norm, and about 95% within two standard deviations.

In terms of the VIX, Colas writes that hitting 27.3, the one-standard deviation level, represents "a garden variety growth scare, and we think it's likely we'll get to that level soon."

By contrast, the rarer two-standard deviation event, "represents an outright panic that history says will require major policy shifts to address," according to Colas.

Other market watchers also acknowledged stock investors are clearly worried about a bear market, but suggested they may be overreacting.

"Markets discount regime changes faster than the economy, but are also more prone to false positives," wrote Dennis DeBusschere, president of 22V Research in a note Monday. "Investors are discounting high odds of a slowdown that is not yet apparent in data."

Yardeni Research is also sympathetic to investor fears, without necessarily agreeing with them.

"It's getting harder to make out the shape of the economy through the fog of Trump 2.0's firings and tariffs," wrote the firm Monday.

The firm said it raised its recession odds forecast to 35% from 20% -- even though it still believes the economy is fundamentally sound.

"We've been betting on the economy's resilience, but we can understand why risk-off is the stock market's current default option," Yardeni wrote.

Write to Ian Salisbury at ian.salisbury@barrons.com

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March 10, 2025 15:12 ET (19:12 GMT)

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