• 657 days Will The ECB Continue To Hike Rates?
  • 657 days Forbes: Aramco Remains Largest Company In The Middle East
  • 659 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,059 days Could Crypto Overtake Traditional Investment?
  • 1,064 days Americans Still Quitting Jobs At Record Pace
  • 1,066 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,069 days Is The Dollar Too Strong?
  • 1,069 days Big Tech Disappoints Investors on Earnings Calls
  • 1,070 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,072 days China Is Quietly Trying To Distance Itself From Russia
  • 1,072 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,076 days Crypto Investors Won Big In 2021
  • 1,076 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,077 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,079 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,080 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,083 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,084 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,084 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,086 days Are NFTs About To Take Over Gaming?
Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

  1. Home
  2. Markets
  3. Other

Stock, Bond, Vix Ratios Turn Down....

Last Friday we released a short note claiming that investors were more bullish than at any time in the past 15 years. Needless to say, that kind of optimism is rarely rewarded and we are therefore extremely skeptical of this latest rally.

Our study overlaid both the S&P 500 and the 30-year bond divided by the Vix to show that when these ratios have peaked together, as they are now doing, both the stock market and bond market have gone down together, which is quite a rare event.

Since we issued that note on Friday the Vix has rallied sharply for two days in a row despite what is perceived to be the beginning stages of a long overdue rally. As such, the stock/Vix ratio has turned down, indicating a possible top in the market.

Certainly, this equity rally has provided plenty of technical contradictions, but this increasingly looks to be the final third leg of a rally, which is speculative in nature rather than based on a true comparative advantage over other asset classes.

Now consider that each time over the past year that the S&P 500/ Vix ratio has risen above 80, the stock market declined an average of 7%. Moreover, the ratio's October 1 high of 87.50 matched the peak seen in August 2000, which was when the stock averages first began their bear market in earnest.

Also consider that there were only two other times in the past 15 years that the Bond/Vix ratio was this high (September 1993 and December 1995). The average decline in the 30-year bond from peak to trough was 19%.

Therefore, it is with opportune deliberation that I point out that these two ratios for the first time ever have retested their all time peaks together and begun to turn down. My view is that it's not a question of whether the bond market or stock market is correct. Instead we should ask if the bond market and stock market are not both mistaken. The implication, of course is that investors have never been more wrong about the state of the economy, inflation expectations, or some combination thereof.

**Intuitively, a high Bond/Vix ratio implies a strong economy and low inflation - investor nirvana. If bond prices were high due to fear of economic weakness, stocks would likely be lower and thus the Vix higher. In this case, economic weakness would not drive this ratio as high as when the economy was perceived as healthy with low inflation.

Back to homepage

Leave a comment

Leave a comment