Volatility subsides, better tidings for stocks

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The CBOE Volatility Index (VIX) is generally regarded as the “fear gauge” of Wall Street, measuring implied volatility of S&P 500 Index options. The highest VIX readings occur when investors become nervous and anticipate huge equity declines, generally as a result of some crisis as shown on the chart below.

After the surge in volatility during the first part of August and the high levels remaining through the end of September, it would seem the worst of the storm is over, at least for now. Consistent with a decline in the VIX, stock markets have improved and could see further upside as volatility reverts to more normal levels.

Source: Plexus Asset Management (based on data from I-Net Bridge).

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