• Managing partner and head of research at Fundstrat Global Advisors, Thomas Lee, recently outlined why the VIX – a volatility index from the Chicago Board Options Exchange – will become an important indicator for equity markets and potentially Bitcoin in the coming months.
• Lee expects a 20% rally for the S&P 500 this year due to inflation falling faster than the Fed recently forecasted, which would cause the VIX to decrease in value.
• Thursday will be a telling day, as if the core CPI is again below consensus, that means the original Fed forecast of 4.8% for PCE is 60 basis points too high.
Recently, Thomas Lee, managing partner and head of research at Fundstrat Global Advisors, outlined why the VIX – a real-time volatility index from the Chicago Board Options Exchange (CBOE) – will become an important indicator for equity markets and possibly Bitcoin in the coming months. VIX was created to quantify market expectations of volatility for the S&P 500. In doing so, the VIX is future oriented, meaning that it only shows the implied volatility for the next 30 days. As the rule of thumb goes, if the VIX increases, the S&P 500 is likely to decrease, and if the VIX value decreases, the S&P 500 is likely to remain stable or increase.
Lee expects a 20% rally for the S&P 500 this year due to inflation falling faster than the Fed recently forecasted, which would cause the VIX to decrease in value. He stated that, “the bond market volatility is below its 200 day [average]. If that happens to the VIX, we would be at 17. Since the 1950s, following a negative year, if the VIX is lower on average than the prior year, we are up an average of 22%. So I think we are set up for a 20% year.”
Thursday will be a telling day, as if the core CPI is again below consensus, that means the original Fed forecast of 4.8% for PCE is 60 basis points too high. This could have a major effect on the VIX, and will be of major importance to watch.
Lee’s prediction of a 20% rally for the S&P 500 is an optimistic one, and investors will be watching closely to see if his prediction holds true. While the VIX can be a useful tool to measure market volatility, it will ultimately be the performance of the S&P 500 that will determine whether or not Lee’s prediction proves to be correct.