As the US economy continues to navigate the impact of Covid-19, investors are keeping a close eye on the Vix index, which measures US stock market volatility. Despite concerns over inflation and interest rates, the Vix has reached its lowest level since the pandemic began, currently sitting at 13.5. This is a significant drop from its peak in October, despite the March collapse of several US regional banks adding to the level of uncertainty felt by investors.
While the Vix index may not be an accurate measure of today’s modern market, as short-term trading and zero-day-to-expiry options become increasingly popular, its tranquility may be disrupted soon. According to James Demmert, Chief Investment Officer at Main Street Research, investors’ complacency may lead to increased volatility in the coming weeks.
While the stock market has shown relative stability, bond markets are comparatively more turbulent. The Merrill Lynch Option Volatility Estimate (Move) index, which measures bond volatility much like the Vix measures equity volatility, spiked in March following the collapse of Silicon Valley Bank. While the Move index has fallen 70 percentage points in two and a half months, it still remains 65 percentage points higher than at the beginning of 2021 and above its 10-year average.
In any case, the current low volatility may not last forever, and investors should remain vigilant in their strategies.
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