Market Extra: Did 2022 break Wall Street’s ‘fear gauge’? Why the VIX no longer reflects the sorry state of the stock market

by | Dec 29, 2022 | Stock Market

U.S. stocks are about to cap off their worst year since 2008. But investors wouldn’t know it by glancing at what’s often referred to as Wall Street’s favorite fear gauge, which has recently failed to reach new heights as stocks tumbled to fresh lows. The Cboe Volatility Index
VIX,
-3.16%,
better known as the VIX, is on track to finish 2022 not far off its long-term average despite widespread pain across markets. The VIX, based on trading in S&P 500 index options, serves as an indicator of expected volatility in the index over the coming 30-day period.

After topping out at 36.45 on March 7, it repeatedly failed to make new highs for the year, according to data from FactSet, even as stocks tumbled to their lowest levels in years in June and again in September and October. Nicholas Colas, co-founder of DataTrek Research, highlighted the phenomenon in several research notes to his clients this year. Not only is the S&P 500 on track to finish the year down roughly 20%, 2022 has also been the most consistently choppy year for stocks in more than a decade by at least one measure. The index has recorded 46 moves of 2% in either direction since the start of the year, the most since 2009, according to Dow Jones Market Data — narrowly surpassing the number from 2020. That’s roughly four times the 10-year average of 11.3 per year. The VIX fell 3% on Thursday to 21.46 in afternoon trading as the S&P 500

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