A new bull market in stocks? Thank the VIX, says Fundstrat's Tom Lee

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The S&P 500's 2023 rally and the collapse of a closely followed Wall Street volatility gauge go hand in hand, says FundStrat's Tom Lee. Here's what's next.

The S&P 500 index exited a bear market on Thursday, while a closely watched gauge of stock-market volatility dropped to a more-than-three-year low. Those two things are related, says Fundstrat Global Advisors founder Tom Lee.

“The VIX impact is the least appreciated. Our work from December 2022 shows that in last 30 years, post-negative equity year , when VIX is down [year-over-year], the median gain is 22%,” Lee said in a Friday morning note to clients . The S&P 500 SPX was up less than 0.1% on Friday to trade shy of 4,300. On Thursday it closed at 4,293.93, its highest close since Aug. 16. Moreover, it finished more than 20% above its Oct. 12, 2022, closing low, meeting widely used criteria that marks the end of a bear market. The Dow Jones Industrial Average DJIA was off around 30 points, or 0.1%.

While the S&P 500, which is weighted by market capitalization, is up more than 12% so far in 2023, the equal-weighted measure of the S&P 500 has gained just 2.6%.Others fear an uncertain economic outlook, arguing that a more pessimistic take reflected in the bond market could quickly unravel the stock market rally if it proves correct.

 

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