The VIX index, known as the “fear index” which measures volatility, has been rising, with traders saying it was likely that investors were using Vix as a hedge just in case the pollsters are wrong again and Donald Trump ultimately comes out on top in today's US presidential election.
The VIX moved above 30 last week, its highest level since mid-June, and has remained elevated ever since, as record virus cases, harsher lockdowns in Europe and a slowing US labor-market recovery have renewed fears of a deeper economic crisis.
“Not much can be said about this election that hasn’t already been said already,” said Jasper Lawler, market analyst at London Capital Group. “From a markets perspective, Biden is baked into the cake but an elevated VIX index tells you nobody’s ready to write off Trump completely.
“If The Donald does pull off another 2016, markets are not positioned for it and volatility will rise even higher. The most likely reason for elevated vol is a contested result – also not really priced outside of the VIX”, he added.
VIX values greater than 30 are generally linked to a large volatility resulting from increased uncertainty, risk and investors’ fear. VIX values below 20 generally correspond to stable, stress-free periods in the markets.
The higher the VIX is it means the S&P 500 is expected to decline and if the VIX drops then traders expect the S&P 500 index to remain relatively stable.
Speaking to Yahoo Finance, Heritage Capital President Paul Schatz said: "The VIX is kind of like that alligator's mouth. As it opens up and gets big, risk increases for it to clamp down and bite your portfolio hard. But I'd say this. A VIX over 30 is super difficult to get things right in the markets. I think VIX above 30 is certainly in the treacherous category."
Share prices are rallying in the US and across the world following a 400 point leap on the Dow Jones Industrial Average yesterday.
The bullishness comes despite Democratic challenger Joe Biden being consistently ahead in most opinion polls and the markets making very strong gains for most of Donald Trump's presidency before the coronavirus hit.