After months of calm trading, volatility has greeted investors over the past week as uncertainty about the Fed’s plans for interest rates and rising bond yields have weighed on equities.
On Thursday, the CBOE Volatility Index (^VIX), Wall Street’s favorite gauge for fear and volatility, hit 21 for the first time since a regional banking crisis rocked the stock market in March.
The move came as headwinds have been mounting for investors. Geopolitical tensions are rising in the Middle East. Fears of recession are still proliferating through corporate America. There is uncertainty around leadership in Washington and what that could mean for another government shutdown. Bond yields are at 16-year highs, and oil prices have been resilient, too.
Any one of these factors could weigh on markets. Taken together, they’ve spooked what was once a roaring 2023 market rally.
“As investors navigate VIX and bond yields, a defensive tilt is essential,” Evercore ISI senior managing director Julian Emanuel wrote on Thursday.
Emanuel had drawn a key line in the sand for the VIX at 21. Below that number, the index could be “micro-driven” by things like AI and earnings results. Above that level, and the macro factors could take control of the market.
“Geopolitical risk (Include Ukraine/Russia and China) is arguably as high as it has been at any time, except 9/11, since before the 1989 Fall of the Berlin Wall,” Emanuel wrote.
But even with all the headwinds weighing on stocks, Truist co-chief investment officer Keith Lerner points out the market story has been more about the rally pausing then a full blown sell-off, with the S&P 500 down about 3.7% since the Federal Reserve solidified its higher for longer interest rate stance about a month ago.
“We’re using the word crosscurrents right now,” Lerner told Yahoo Finance Live. “I do think as far as you think about what’s happening, the, you know, equity market has been very resilient in spite of everything that’s happened here recently.”
Recent market action shows the path to a calmer VIX is likely rather straight forward. Investors want a clearer picture of when the Fed will be done hiking rates, which would likely relieve pressure on yields. But unfortunately when that picture will be painted isn’t nearly as straightforward.
“The main thing is, as we move towards the end of a Fed funds hike cycle, we have to be a patient,” Oppnehiemer managing director John Stoltzfus, who has a 4900 year-end price target for the S&P 500, told Yahoo Finance Live on Friday.
Josh Schafer is a reporter for Yahoo Finance.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Jessica Roberts is a seasoned business writer who deciphers the intricacies of the corporate world. With a focus on finance and entrepreneurship, she provides readers with valuable insights into market trends, startup innovations, and economic developments.
