Despite Markets at Record Highs, Fear is Still High


The CBOE volatility index has revealed that amid the massive market rally, investors are still worried.

The index is commonly known as the VIX or "fear-indicator." When the index rises, it signals that investors are expecting significant market volatility in the short-term.

"Besides the last eleven months, there have only been five other streaks where the VIX remained elevated above 20 for at least six months," according to the Bespoke Investment Group.

Investors are concerned that another pandemic or a massive failure with vaccines could happen and drag markets down again. However, when it comes to investing, it is typically advised that "past performance is no guarantee of future performance" of the good and the bad times.

The VIX has remained above 20 for some time now and actually set a record as of February 12 for the longest duration over 20. The VIX didn't stay below 20 for long despite massive fiscal stimulus packages, low-interest rates, and record-high markets and liquidity.

Yesterday, the VIX jumped above 22 as all three major US indices recorded new-all time intraday highs. However, the VIX's streak could be understood to a certain extent. Individuals have struggled with severe anxiety and worry in their own lives, so it's understandable that the past year has boiled over onto investing.

It's true, a market correction could happen at any moment and the bears who have called the rallied speculatively and overvalue would cheer. However, in the long-run corrections have proven to be healthy for bull markets and would provide entry points for investors who have missed out on gains over the past year.

Time will tell, but the VIX is an interesting instrument with storied success.

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Economics, Finance and Investing