The stock market's fear gauge needs to spike up significantly before the bear market bottoms out

·2 min read
US stock market traders
Friday's inflation print shocked investors.Xinhua News Agency/Getty Images
  • The US stock market won't find a bottom until there's a "large panic-induced drop," The Kobeissi Letter told investors on Tuesday. 

  • There's never been a bear-market bottom without the VIX reaching 45+, the capital markets newsletter told investors.

  • That so-called fear index would need to rise 61% from its current level to hit 45. 

The bleeding in the S&P 500 this year is unlikely to stop until there's a frenzied level of selling in the stock market, one financial newsletter told investors on Tuesday.

The S&P 500 dropped Tuesday, with nine of its 11 sectors in the red. The index has lost 22% from the all-time high of 4,818.62 it reached six months ago.

"This market will not bottom until we see a large panic-induced drop," The Kobeissi Letter said in a message on Twitter.

"We are well into bear market territory but panic selling has yet to begin. No bear market in history has bottomed without $VIX at 45+," the newsletter focusing on global capital markets said, referring to the Cboe volatility index.

The VIX, known as Wall Street's fear gauge, was just above 28 on Tuesday, and the index would need to rise by about 61% to hit 45. So far this year, it had already gained 65%.

"This market will not bottom until we see a large panic-induced drop," the newsletter said.

Investors have slammed equities lower as they foresee a recession on the horizon with the Federal Reserve ramping up borrowing costs to cool down scorching inflation. Rising energy prices contributed to US consumer price inflation accelerating to 8.6% in May, the fastest pace since December 1981. The Federal Open Market Committee this year has pushed up the fed funds rate to a range of 1.5% to 1.75% from the ultra-low range of 0% to 0.25%.

Investors are waiting to see if the central bank at its July 26-27 meeting will raise the rate range by another 50 basis points or by another 75 basis points. 

"We are seeing widespread liquidation of everything. Stocks, commodities, treasury yields, and crypto are all down together," The Kobeissi Letter said in a separate tweet on Tuesday.

"This is what happens when you raise rates into a recession. Everyone wants cash," it said.

A chart shows the VIX's 2022 performance through July 5.
A chart shows the VIX's 2022 performance through July 5 and the so-called fear gauge has risen 65%.Markets Insider

Read the original article on Business Insider

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting