VIX Hits the Roof: Is This Selloff Overdone?

As we have stated in the last several Wealth Watches, a pullback was needed as the market had gotten ahead of itself. The first pullback looked like a classic period of consolidation, but Friday’s job report sent the markets reeling as the word “recession” poked its ugly head up again.

The fear index, the VIX, reached a very extreme high, noting that capitulation was taking place. Has the selloff been overdone? In our opinion, yes, and a lot of technical damage was done, so it will take some time and volatility before it corrects itself.

Last Thursday, and Friday, a few of our stops were hit, and cash was raised by roughly $1 billion. If the market continues to fall, additional stops will be hit, and more cash will be raised. This gives us a lot of buying power when the market does turn back to the upside, which we expect it to do.

After selling off like this, look for the market to stage a shorter-term rally and then sell off a bit more before retesting the lows. That should set up a new base for the market to work higher from.

Remember, markets routinely have 10% corrections, even in bull markets. Again, equity indices suffered technical damage, and it will take some time to repair.

Some brief things to think about as to why the selloff occurred: Seasonals are poor for August historically. The July jobs report raises concerns that the Fed is “too late.” The Bank of Japan raised policy rates to +0.25%, the highest since the GFC. Geopolitical risks heightened in the Middle East. Large-cap rotation out of MAG7 is causing “portfolio pain.” The 2024 Presidential election has tightened dramatically since the debates.