Why this stock-market gauge contradicts expectations for Fed rate cuts

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History shows that falling stock-market volatility doesn't gibe with expectations for rate cuts, one Wall Street analyst says.

Investors once again penciling in a pivot to rate cuts by the Federal Reserve aren’t getting any backup from a closely watched gauge of expected stock-market volatility, one Wall Street analyst warned Wednesday.

The Cboe Volatility Index VIX , commonly referred to by its ticker symbol, “VIX,” closed Tuesday at 16.83, its lowest finish since Jan. 3, 2022, according to Dow Jones Market Data. The options-based index measures expectations for S&P 500 SPX volatility over the next 30 days. It remains well below its long-term average of around 20.

So far the VIX isn’t offering any signs the Fed put is likely to be exercised. The Fed has often, but not always, cut rates when the VIX has spiked, Colas recalled, including right after the 1990 Iraqi invasion of Kuwait, during the 1998 Asia Crisis, heading into the 2002 and 2008 recessions, and at the start of the pandemic in 2020.

 

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