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NOW WHAT? AS STOCKS TUMBLE, KEEP AN EYE ON THE VIX

Global stocks slumped on Thursday in response to U.S. President Donald Trump's announcement of higher tariffs than anticipated on Wednesday, fueling fears of a global economic slowdown.

Nicholas Colas, co-founder of DataTrek Research, is watching the CBOE Volatility Index .VIX to identify potential signs of stock market stabilization and possible triggers for policy action.

Colas noted that the VIX’s 30-day average closing level is 21.4, “and that’s an unhealthy sign.” Since its inception in 1990, the VIX has typically hovered around its 19.5 average during bear markets and remained below it during bull runs. The only deviation occurred during the 1998-1999 dot-com bubble, but even then, the subsequent stock gains were eventually wiped out.

Colas warns that the current high volatility levels are undermining investor confidence, stating, "markets clearly need to show less volatility, and soon."

He identified 27.3 as the first level on the VIX that may suggest a potential entry point for stocks, which represents one standard deviation above the long-term mean. The index closed above this level on March 10, with the S&P 500 .SPX reaching its then lowest point two days later.

On Thursday, the VIX reached a high of 29.26, the highest since March 11.

The next potential "buy" level, according to Colas, is 35.1 or higher, equivalent to two standard deviations above the long-term mean. This threshold has only been breached twice since the bull market started in October 2022, specifically on October 11, 2022, and August 5, 2024. In both instances, the stock market experienced solid rallies thereafter.

Colas suggested that a rise above the 35.1 level might be beneficial, as "it is only that level that consistently draws a policy response." He cautioned that the risk for stock prices lies in the possibility of volatility remaining moderately high for weeks, rather than peaking at historically very high levels and subsequently declining.

(Karen Brettell)

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