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More Evidence that the ‘Worst is Over’ in the Stock Market and the Coronavirus



The Big Q: Is the worst behind the stock market after a coronavirus-induced selloff?

The Big A: We do not know for sure as officials attempt to restart economies from a self-imposed period of hibernation to curb the spread of the virus, but a chart pairing the infections of the COVID-19 chaos by growth rate and 1 of Wall Street’s closely followed indicators of volatility implies that measures of both the public-health crisis and market volatility looks to have marked their highs, a potentially good sign for stock-market Bulls.

The chart is by Torsten Sløk, chief international economist at Deutsche Bank Securities, (NYSE:DB) shows that the Cboe Volatility Index VIX, +0.84%, also known by its ticker symbol VIX, marked its Top on 16 March at 82.69, surpassing its high of 80 during Y 2008 financial crisis.

The 16 March high was reached about a week before the DJIA, -0.13%, the S&P 500 index SPX, -0.52% and the NAS Comp Index COMP, -1.40% put in their market lows in on 23 March.

The VIX is based on options contracts in the coming 30-days pegged to the S&P 500, and tends to rise when stocks are falling and decline as markets rise. It is seen by technical analysts as a gauge of market expectations for the coming month and tends to be used as a hedge against the prospect of declines in the stock market, because assets tend to fall faster than they rise.

Mr. Sløk’s chart illustrates that 1 measure, the number of countries with a growth rate of infections of COVID-19 that are higher than 5% signals that the coronavirus that has infected more than 3-M people worldwide may have reached a peak in late March to early April (see the chart):

Far from being the last word, the graphic of the VIX and global infection rates from the coronavirus may provide some comfort to countries still confronting with the disease.

Tuesday, Dr. Anthony Fauci, aka Dr. Doom, an infectious disease expert was relatively optimistic about the outlook of the virus. He said he is “cautiously optimistic” that a vaccine to stop the coronavirus will be known “by this coming Winter.

Playing the VIX as Small, Mid Caps Outperform

Have a healthy day, Keep the Faith!

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S. Jack Heffernan Ph.D. Economist at Knightsbridge holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Crypto, Mining, Shipping, Technology and Financial Services.