RTX - VIX: Skew Index Surge Signals Market Fear Of A Major Downturn
2024-02-15 15:25:35 ET
Summary
- Volatility has been dormant, but the skew index suggests increased risk of a large downside movement in the stock market.
- The S&P 500 Index is trading above its moving averages, which could exacerbate a sell-off if broken.
- Banking issues, particularly related to commercial real estate, could lead to market nervousness and potential bank failures.
Volatility, exemplified by the S&P VIX Index ( VIX ), has been dormant since November 2023. The S&P 500 Index (SP500) has surged and trades well above its moving averages. Meanwhile, banking issues are a persistent background noise. They could be the start of something bigger, idiosyncratic, or temporary events that will be ignored. With the Federal Reserve's Bank Term Funding Program winding down in March 2024, I'm not sure markets should be so sanguine. We're going into an options expiry Friday with a slew of economic reports (now closely followed by the Fed). I think there is an opportunistic case to be made for hedging through VIX calls while things are still relatively quiet: