Should we worry about the Vix 'fear gauge'?

The Vix volatility index – the so-called 'fear gauge' – shot up in August. But, says Cris Sholto Heaton, it might not be as useful as many people think.

Sometimes a piece of market data can equally well be read as bullish or bearish depending on your preference. Consider the Vix, a measure of the volatility of S&P 500 stocks that's often referred to as the market's "fear gauge". In August, the Vix rocketed, from 12 at the start of the month to an intraday high of 50 on 24 August, before falling back to around 30 at the time of writing.

Interpretations of this move varied so much that it's difficult to believe that writers were talking about the same indicator. The spike is a bullish sign that markets are getting close to a "capitulation stage", wrote Simon Thompson in Investors Chronicle on 25 August. Not so, said Jim Edwards on BusinessInsider.com on 31 August; research by Goldman Sachs shows this level of the Vix is "usually seen only when the US is in recession".

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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.