The popular Wall Street Fear Index known as the VIX has seen a substantial upward movement in the last few days triggering the attention of markets. The VIX has increased 15.15% over the last 5 complete trading days in the US, and the rise seems to be persistent. Whilst the level of the VIX is still below the high classification mark of 20, it still sets tongues wagging when there is a spike. Markets, investors, and traders are experiencing a sense of apprehensiveness with the volatility of the current short term market but up until now the Australian version has had a rather tame start to 2024.
The VIX index measures the volatility of the S&P 500 index in a 30 day period. The VIX index has an inverse correlation with the stock market, so as it rises, the stock market should in theory, decline. In the 1st quarter of 2024, the VIX has risen a staggering 37.05% amid various domestic and global factors. geopolitical issues and inflation are among some of the factors that can affect both the VIX and various stock exchanges round the world. It is important to note that the VIX is not exactly a fortune teller, and cannot predict the market conditions 100%, it is a guide, an indicator of market movements and volatility.
While the VIX is spiking in the US, its Australian counterpart, the ASX 200 VIX, or A-VIX under the symbol (ASX:XVI), presents a contrasting picture with a 3.83 percent decline this year… up until Thursday that is. Although YTD the ASX 200 VIX has decreased by 3.83, in yesterdays’ session it shot up by 12.65%. Whilst the ASX 200 VIX is still at very reasonable levels in historical terms, and significantly lower than its’ US counterpart, a spike does not bode well for those seeking surety, and investors may need to be a bit more cautious in the interim. This disparity between the two VIX indexes does hint toward the potential resilience of Australian stocks in the face of the global events that have roiled other markets.
The A-VIX, like other VIX indexes has a strong inverse correlation with the ASX 200, and a spike in the A-VIX indicates a potential correction in the ASX200. The A-VIX is a little more forward looking, so it does give some time in advance for traders and investors to act, positioning for anticipated market changes. It is never advisable to take one signal or index as key to the markets’ future, but it is always healthy to take on board as many key pointers as you can that might help you determine the best path forward.
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