Forbes: The Worst of The Stock Market Crash May Be Yet to Come, According to Wall Street's 'Fear Gauge' Signal

Article by Jonathan Ponciano in Forbes

As investors grapple with the worst-performing market in years, some experts have zeroed in on Wall Street's so-called fear gauge as an indication that stocks have more room to fall—even as major indexes flirt with bear market territory.

The CBOE Volatility Index, a measure of expected volatility known as the “fear gauge," leaped to nearly 35 points on Monday as stocks added to staggering losses this month—approaching a 52-week high of nearly 39 points in early March, when Russia's invasion of Ukraine exacerbated market uncertainty and pushed the S&P 500 down 5% in a matter of days.

Still trading below its March highs even after "ugly" stock-market declines last week, the VIX appears "muted" relative to recent market stress—a sign "investors believe an even deeper selloff may occur over the coming months," Robert Schein, the chief investment officer of Blanke Schein Wealth Management, said in emailed comments.

"If investors truly believed the bottom was near, we would likely see an even higher VIX," he added, pointing to the Federal Reserve's looming interest rate hikes as a potential catalyst for future sell-offs.

In a Monday note, DataTrek Research cofounder Nicholas Colas said he'd view the VIX closing at 36 or higher "as evidence of a larger washout in U.S. equities," which "really should have happened" on Friday, the day after the Dow Jones Industrial Average notched its worst day since 2020, plunging more than 1,000 points. "But it did not," Colas said of the relatively restrained VIX, "and so we continue to wait for an investable bottom.”

"While many investors are focused on finding the market's bottom, we encourage investors to be prepared for a sideways trade for quite some time," says Schein. "Just because a market bottoms, doesn't mean it's headed right back to record highs."

In a client note last week, Morgan Stanley analyst Michael Wilson warned that mounting evidence showing economic growth is slowing more quickly than feared sparked an “especially vicious” end-of-month stock selloff and likely isn't over. Wilson predicts the ........

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