The VIX, the so-called fear gauge, is driven just as much by greed, with neither sentiment leading to the bearish or bullish outcome expected for stocks. Greed has yet to take hold of the current rally, but when it does, equities are at risk.
Fear is morphing into fearlessness as stock markets in the US make new highs or flirt with them. The VIX jumped in recent months as concerns about trade wars and actual wars engulfed markets. But the index, as we’ll show, is driven by greed as well as fear, and extremes in these on average lead to the contrarian outcome of lower or higher stocks, respectively.
