Saqib Iqbal Ahmad

NEW YORK (Reuters) – A surprising lack of panic in the U.S. stock market as measured by Wall Street’s “fear gauge” is keeping some investors from calling a bottom on an already bruising equity selloff.

Cboe Volatility Index (Cboe Volatility Index) has averaged around 37 since 1990 market bottoms. Its most recent high was 32.

Investors think that this suggests that stocks may not see the crescendo in fearful selling that often accompanies past market bottoms. Despite the fact that the record high has been broken by nearly 20%, it would still confirm that there is a bear market.

Kris Sidial co-founded volatility arbitrage firm The Ambrus Group. “While there’s a sense of fear out there, there isn’t any real panic.” Capitulation is the only thing you don’t see.

The – which measures the expectation of stock-market volatility as expressed by options prices – stands far above its long-term median level of 17.6.

Many investors think volatility will remain high as markets deal with a Federal Reserve that’s too hawkish and rising inflation, along with the uncertainty resulting from the War in Ukraine.

While it’s not necessary for the VIX to shoot higher before calm returns to markets, the index’s failure to climb well above the mid-30s may be a sign that selling in stocks is not yet washed out, making it more dangerous for those looking to buy on weakness, market participants said.

Steve Sosnick (NASDAQ: Chief Strategist at Interactive Brokers) stated, “I don’t believe we have seen that kind of event that marks the bottom.”

The VIX had logged a high close of 82.69 during the March 2020 COVID-19 driven selloff, after which the S&P 500 more than doubled as the Fed slashed rates and implemented other easy money policies to support the economy. In 2018, the index reached 36.07, when stocks were just a fraction away from entering a bearish market due to concerns about tighter Fed policies. It topped at 80.86 in the Great Recession.

Mike Vogelzang (CAPTRUST’s chief investment officer) stated that he would like to see “more panic and absolute flushing” in the market. I’d like to see VIX at either 40 or 45.”

One reason why the VIX – which is calculated based on S&P 500 options contracts – may be relatively subdued is that the gradual grinding selloff has left investors lighter on their allocation to equities.

According to analysts, investors’ total equity positions have fallen to their lowest levels since the 2020 COVID-19 saleoff. Deutsche Bank (ETR:) estimate.

Meanwhile, options positioning in S&P 500 and the VIX show a market that is very well hedged against declines, said Kochuba, founder of analytic service SpotGamma. Kochuba explained that even though the market has fallen, investors don’t have to rush to get more put options.

The VIX is far from the only sign investors look at when trying to determine whether markets have bottomed, and at least one volatility measure – one month historical volatility – shows markets may be closer to a turning point than indicated by the VIX.

That measure of choppiness stands at 29, its highest since July 2020 and about 4 points above where it stood on the day the S&P 500 bottomed during the last 54 instances of corrections and bear markets going back to 1928, a Reuters analysis showed.

Some believe stocks will recover but not without volatility.

Patrick Kaser, Portfolio Manager at Brandywine Global Investment Management said: “What we have now are people waiting for a bounce.”

Kaser explained that to celebrate the ending of selling, there needs to be a “moment high-profile failure or pain”.