Stocktake: More volatility ahead for stocks?

Investors fearful, but not reaching extreme levels seen near market bottoms, indexes suggest

The Vix, Wall Street’s so-called fear index, recently peaked at 25.7 before falling back to its historical average, in the low 20s. Photograph: iStock
The Vix, Wall Street’s so-called fear index, recently peaked at 25.7 before falling back to its historical average, in the low 20s. Photograph: iStock

Saying stocks will likely be higher in a couple of months is all very well, but it doesn’t mean investors won’t experience some nervy moments.

Indices often rebound after a climactic sell-off, when sentiment has become very ugly. That’s not the case right now.

Yes, sentiment has deteriorated. For example, a recent American Association of Individual Investors (AAII) poll found pessimism had hit its highest level in a year. That said, recent AAII readings have not been extreme and are not indicative of investor panic.

CNN’s Fear and Greed index, a composite sentiment measure tracking seven indicators, suggests investors are fearful, but remains shy of the extreme fear levels often seen near market bottoms.

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Notably, the Vix, Wall Street’s so-called fear index, recently peaked at 25.7 before falling back to its historical average, in the low 20s. When investors get spooked, the Vix tends to hit mid-30s readings.

In other words, the bull market may be alive and well, but investors shouldn’t be surprised if more volatility lies ahead.