VIX index surges to highest level since May 2023 amid economic concerns

By Samir El Khoury, ACSI, ACICMP?

The VIX, the fear and volatility index that measures investors' expectations regarding price movements in the stock market, currently stands at around 18 points. This marks a rise from 12.73 points, representing its highest level since the end of May 2023. This increase indicates a sense of turmoil and unease among investors in the US stock markets.

This notable surge can be attributed to several key factors, the most significant being:

1. Fitch's downgrade of the US credit rating from AAA to AA+.
2. Moody's decision to lower the credit ratings of ten small and medium-sized US banks, coupled with a negative outlook for eleven lenders. The agency has also hinted at the possibility of downgrading larger lending institutions.
3. The decline in the US banking index following the regional banking crisis in March of this year. The index saw a 50% drop but recently rebounded by around 15%. The ongoing Moody's crisis could potentially exacerbate these declines.
4. The increase in the US dollar index, which gauges the dollar's performance against a basket of six major currencies, since mid-July. This rise has put pressure on the S&P 500 index.

Markets are eagerly anticipating crucial US economic data today, notably the Consumer Price Index (CPI) and the Core CPI indices. These figures could alter expectations regarding interest rates at the next Federal Open Market Committee meeting.

From a technical perspective and based on Fibonacci analysis, there exists a possibility that the VIX might climb to levels of 19.61 (38.20%), 21.74 (50%), and 23.86 (61.80%). However, if the level of 15 is breached, the index will likely target 12.73.

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.

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