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As Americans of a certain age might remember, Bill Clinton’s presidential campaign had a tendency at first to wander off message. To keep the candidate and the campaign focused, Clinton’s strategist James Carville installed a whiteboard in the middle of the campaign’s headquarters that simply read, “It’s the economy, stupid.” Carville was able to keep the campaign focused on the economy, which had faltered under the incumbent, George H.W. Bush, and Clinton pulled off the upset.

Similarly, investors today are swimming in data and crosscurrents. The pandemic is doing real damage to some companies and actually helping others. Cases continue to rise in the US, while the Federal Reserve and Congress continue to work out ways to help. Staying focused is not easy.

While predicting the future of the market is a not the same as analyzing businesses, and tends to be a gigantic waste of time and money, one indicator this year has been so consistent as it relates to markets that perhaps Carville could reword his statement as follows: It’s the volatility, stupid.

It might not be as catchy, but it might be more profitable.

Technically, market volatility is a measure of expected future price changes and is derived from options pricing. The pricier the options, the higher the market’s expectation for large price swings. After all, investors pay more for options when they expect bigger price moves.

In practice, volatility is a measure of fear. Volatility spikes when markets are in disarray, like they were earlier this year. Investors eagerly bid up the price of options in order to protect themselves from losses.

The Chicago Board Options Exchange’s Volatility Index, the VIX, is the most popular measure of the market’s expectation of future volatility. For perspective, since 2010, the average closing level of the VIX has been 17.4. Going back further, to 1990, which was before the CBOE even began publishing the VIX, the average is just slightly higher at 19.4. This year has been characterized by higher than normal volatility, to put it somewhat mildly. In the height of the market panic back in March, the VIX rocketed into the 80s, closing on March 16 at 82.69, the highest close since the Great Financial Crisis. If you remember what you felt like back in March, you probably didn’t feel like buying stocks. That is what is known as… fear.

However, investors who were able to embrace their inner Baron Rothschild and buy when there was blood in the streets were rewarded handsomely. While the bottom wasn’t until a few days later on March 23, the S&P 500 is now up more than 38 percent since VIX’s post- GFC closing high.

While volatility does not equate fear, it is a close approximation. Going back to 1990 again, changes in the VIX are strongly negatively correlated with changes in the S&P 500. The correlation coefficient is almost exactly negative .7 (perfect negative correlation would be negative one). Moreover, the correlation has been stronger during the last decade. Since the start of 2010, the correlation is -.75.

Looks easy in hindsight, doesn’t it?

Well, the good news for bulls is that the VIX is still high on a historical basis, though obviously not nearly as high as it was. The average closing level for the VIX going back to 1990 is 19.4. Since 2010, the average close is 17.7. With the VIX still hovering around 24, there is still room for it to fall further, perhaps well below historical averages, and theoretically for stocks to advance, all else equal.

Of course, the VIX did not fall in a straight line this year, nor did stocks rise in a straight line, though recently it seems that way. All else is not equal. The VIX was below 15 in mid-February, even as the world was aware that the novel coronavirus was starting to spread. Fear is perhaps as contagious as the virus itself.

Watching the VIX is not a way to predict the future of virus, the economy, or the market. However, it has been an accurate gauge of fear, and the index is telling us the market is still more fearful than average. It is a bullish indicator.

So, with apologies to Mr. Carville: it’s the volatility, stupid.

Any opinions are those of Burke Koonce and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Burke Koonce is a financial advisor at Raymond James & Associates, Inc., member New York Stock Exchange, member SIPC.