Good day TradFi Community!
So we are going through a rough patch in financial markets. Up until fairly recently, we have had a lot of bullish sentiment as it relates to AI but that has not translated well to shareholder earnings; this was always as concern as the rally related to AI started. Some companies have done better than others as it relates to AI. $META (Facebook's holding company) has done well with AI so far but $MSFT has been lacking. It seems like we were already on the verge of a selloff and when $MSFT posted poor earnings that was one of the drivers that escalated the selloff, in my opinion.
Rather than getting too deep into what all is driving everything happening in markets, I did want to talk about the VIX and what it is and what it is supposed to mean.
So the VIX is up about 15% today. As I am writing this post the VIX has been jumping around quite a bit today.
https://finance.yahoo.com/quote/%5EVIX/
If we zoom out we can see this is not the sharpest or biggest move by the VIX but it is still not "good" for investors when we have a surging VIX with downward price movement.
https://finance.yahoo.com/quote/%5EVIX/
So what is the VIX?
The VIX is often times referred to as the "Fear Index." I don't think this is the best description for the VIX but that description is an easy way to describe it in a concise way.
VIX has been around for a long time. It was started in 1993. It is basically a mathematical way to articulate sentiment.
When the VIX sees sharp increases this usually indicates fear and uncertainty. Historically a VIX index below 20 implies the market is "stable" but that is not always true; as always, it really just depends on the current market and what is happening. https://www.investopedia.com/terms/v/vix.asp
The VIX is forward looking, meaning it is trying to articulate expected volatility in the future. If you are following markets right now, you can appreciate there is an expectation for increased volatility. The stock market does not typically just go down or up, typically it bounces around while following some trend. So in this case we are seeing a pretty large stock market sell off. Expectations for increased volatility makes sense because if there is a rebound it could be dramatic just like the recent selloff.
As I continue to write this post VIX is now down to 12.46%, that is just how it goes sometimes. I am going to keep this post short and sweet so it stays relevant.
If you want to read in detail about the VIX you can reference this link - https://cdn.cboe.com/resources/indices/Volatility_Index_Methodology_Cboe_Volatility_Index.pdf
Please be mindful, the VIX is an investment product sold by CBOE so this link I shared is a bit promotional in nature. But the PDF shared here does a good job articulating how the VIX is calculated and what it is holding.
*Nothing in this post is financial advise and this post is meant for educational purposes only.
Cheers,
Hurt