Fear fades in US stocks, but history shows quick return to calm unlikely
Last week, U.S. stocks experienced significant volatility, but the market is now calming down. The Cboe Volatility Index (VIX), which measures investor anxiety, has dropped from a four-year high and stocks are rebounding.
The S&P 500 is up 3% from last week’s lows, while the VIX remains around 20, well below its peak of 38.57 on August 5.
The recent market turmoil was largely driven by the unwinding of leveraged positions, like yen-funded carry trades, rather than long-term worries about global growth.
Historically, similar spikes in the VIX suggest that markets can remain unsettled for months, even after initial anxiety fades. It usually takes around 170 trading sessions for the VIX to return to its long-term average.
The recent volatility follows a period of strong stock market gains, with the S&P 500 hitting a record high in early July.
Problems began with disappointing earnings from tech companies and worsened with unexpected interest rate hikes from the Bank of Japan. Despite the recent drop, the S&P 500 is still up 12% for the year.