What does a low VIX mean for the Stock Market?

Stock Market VIX

In the wake of Twitter rants and and nuclear missile tests, the stock market has succeeded in doing something it hasn’t done in almost 2 1/2 decades.

The VIX is at its lowest point in 24 years.

In the investment world, the VIX is commonly referred to as the the “fear indexor” or the “fear gauge” for the S&P 500. It is a measure of the implied volatility of S&P 500 index options.

According to Wikipedia, the current VIX concept formulates a theoretical expectation of stock market volatility in the near future.

What does a low VIX mean for the average investor? Good question. The answer is mixed, depending upon with whom you speak.

Some pessimists may see the low VIX as a bad thing, a warning even. Their concern is that the ultra-low VIX will create a false sense of security for investors, setting them up for potential doom.

But many analysts see the low as an expected result of ideal conditions for stocks to continue to climb.

One theory behind the so-called “melt-up” with stocks is that the Federal Reserve has paused from reacting quickly to restrict monetary policy. The result is a healthy pool of investors that hasn’t fled the stock market, which eliminates the need for a corrective phase.

Earnings growth for the S&P 500, which is one of the biggest forces behind share gains, is expected to be 7.3% in the second quarter. The potential gains would mark its fourth straight period of expansion, in accordance with data presented by Bloomberg.

Richard Sichel, senior investment strategist at Philadelphia Trust put it this way, “We think earnings are going to be good, and there’s still a lot of hope for pro-business activity ahead.”

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