The VIX has surged to 29, with backwardation signaling extreme short-term market fear.
Market concerns now extend beyond tariffs, with fears of a broader economic slowdown taking hold.
Analysts warn that a true bottom is unclear, as earnings revisions and further declines may still be ahead.
The CBOE Volatility Index (VIX) has surged to 29, but the bigger story is the shift in the VIX curve. Right now, near-term VIX options (cash and March contracts) are priced higher than longer-term contracts for April, May, and June—a state known as backwardation.
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This kind of setup is unusual and typically signals high levels of market panic. Historically, it’s been associated with short-term tradeable bottoms, where buyers step in after extreme selling pressure.
“Short-term fear is off the charts, and in the past, we’ve seen bottoms form at these levels,” said an analyst familiar with volatility trends.
Bigger Picture: Market Fear Extends Beyond Tariffs
While tariffs were the initial concern, broader economic slowdown fears have now entered the mix. When markets start pricing in a downturn, it becomes harder to call the absolute bottom.
“The market moves ahead of slowdowns, but if this is a true economic downturn, we could see further declines as earnings expectations adjust,” analysts caution.
Is the Bottom In? Not So Fast
In past downturns, markets have gone through multiple legs down, as analysts revise earnings estimates lower in response to corporate guidance. Right now, whether this is a full-blown recession or just a temporary slowdown is still unclear.
For now, the VIX spike and backwardation signal extreme short-term fear, but whether this translates into a lasting recovery or just a brief bounce remains to be seen.
