VIX INDEX OUTLOOK:
- The VIX spikes higher after Russia launches a full-scale invasion of Ukraine
- Risk assets decline in the early trade, though the sell-off appears to be moderating
- A lot of bad news has been priced in already, so we shouldn’t rule out a relief rally in the near term once traders realize the crisis in Eastern Europe will not materially impact the global economy. This may pay the way for a sharp decline in the VIX index.
Most read: What is the VIX? A Guide to the S&P 500 Volatility Index[1]
The VIX index soared Thursday amid rising geopolitical tensions in Eastern Europe after Russia launched a full-scale invasion of Ukraine from land and sea, targeting military installations and infrastructure in many cities in an effort to demilitarize the country and facilitate the incursion.
In early trading, the Cboe fear gauge spiked higher to 37.7, its highest level since January 24, before retreating slightly towards the 33.00 area. The volatility explosion coincided with a sharp pullback in stocks[2], with traders dumping risk assets and rushing into the safety of U.S. bonds and gold[3], as Europe plunged into its biggest security crisis since WW2.
The United States and Western allies said they will impose severe sanctions on Moscow for escalating the conflict and for waging war without reason. This scenario will fuel jitters and create more uncertainty, especially if President Putin retaliates by choosing to cut off energy supplies[4] to the region. On Wall Street[5], uncertainty equals volatility, so we may continue to see turbulence in the coming days, but on a smaller scale.
However, it is important to note three key points: 1) much of the geopolitical crisis has already been
