In these times of war, sky-high fuel prices, rising inflation and global interest rate hikes, you’d think the stock markets’ so-called fear index would be flashing red, but it’s not and that worries economist David Rosenberg .
“The VIX index reflects, to a large degree, the high level of complacency in the marketplace,” the president of Rosenberg Research & Associates Inc. said, referring to the Chicago Board Options Exchange Volatility Index (VIX).
The VIX, which is supposed to measure real-time volatility in the S&P 500 index , has been hanging around one-year lows of about 15 after spiking in the early days of the United States’s conflict with Iran.
VIX readings of zero to 15 indicate some optimism along with very low volatility; 15 to 25 show a certain amount of volatility, but not extreme; 25 to 30 mean there’s some market turbulence and increasing volatility; while anything over 30 indicates a highly volatile market coupled with some extreme swings, according to Toronto-Dominion Bank .
“The low level reflects the high level of confidence in the stock market,” Rosenberg said.
Other data points are also indicating investor confidence, including a record high reading of Market Vane, which tracks bullish and bearish sentiment amongst markets and investors.
“All these charts are lining up, telling you that the market, generally speaking, has a high level of confidence that the returns the S&P 500 is going to deliver now and into the future are going to be rather significant,” Rosenberg said.
But he said that confidence is misplaced and that market volatility is coming.
For one thing, Rosenberg expects there to be less hand-holding by the U.S. Federal Reserve of stock markets given that new Fed chair Kevin Warsh has signalled there will be less forward guidance on where policymakers think interest rates are headed.
“Lopsided” markets with everyone in on the same trade are also sending a danger signal to Rosenberg, as are the rising levels of margin debt, which is up 50 per cent over the past year.
“When you look at the VIX and you look at market positioning and you look at sentiment and you look at valuations, the only other time I can ever remember in my professional life such a lopsided market was back in the late 1990s,” he said, referring to the period just before the dot-com blowup.
Craig Basinger, chief market strategist at Purpose Investments Inc., said global headlines talking about US$100 oil and five per cent bond yields aren’t “market-friendly,” so one would expect a higher VIX.
“But behind that, you still have the residual positive influence of a great earnings season,” he said. “AI keeps oscillating, but it’s still largely positive for the market, and then you’ve got decent economic data that really hasn’t fallen out of bed.”
Furthermore, what was bad news one day gets digested pretty quickly or forgotten by markets.
For example, the VIX spiked to about 30 when the war on Iran started, but it rose past 50 on U.S. President Donald Trump’s so-called Liberation Day.
“The market just gets used to things,” Basinger said, adding it can react quickly to news while obscuring the longer-term impacts of events. “You know, $100 oil doesn’t cause a recession, but I’m gonna say six months of $100 oil probably does.”
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Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff and Bloomberg.
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Posthaste: The stock market's fear index is scary, says economist — but not for the reason you think
2026-09-25 12:00:15
