Welcome back from Easter weekend. Today’s edition unpacks the disconnect between Wall Street’s fear gauge and the stock market, Fed independence, AI’s impact on the job market and more. Was this email forwarded to you? Join 190,000 self-directed investors and sign up here. 

The VIX and S&P 500 aren’t on the same page

The stock market is pricing in confidence and stability, but Wall Street’s fear gauge is flashing crisis-level uncertainty, underscoring the disconnect between what investors hope for and what volatility might already know. 

Since 1990, the VIX has spiked above 43 — roughly three standard deviations above normal — on just 2% of trading days.

Less than two weeks ago, on April 8, the index closed at 52.3, a rare four-standard deviation reading. 

Historically, when volatility hits that level it’s a sign something is breaking beneath the surface. The last time the VIX surged that high the world was dealing with a financial crisis or a pandemic. 

Tariffs are the catalyst now, yet equities have barely flinched. 

The S&P 500 continues to trade between 19x and 20x forward earnings, about 8% above the 10-year average and 30% higher than the 15x trough seen in 2022, according to DataTrek Research. 

Those are not recession multiples, but instead signal confidence and optimism — the opposite of what the VIX points to.

“The importance of volatility as a signaling mechanism cannot be overstated,” said David Cervantes of Pinebrook Capital. “Volatility impacts the strike prices on the entire universe of economic and financial transactions.”

Indeed, the VIX influences risk premiums across asset classes. When it spikes, markets have to reprice risk, but it usually doesn’t happen all at once.

While the index has cooled to about 30 — still a fearful level — its one-day presence above 50 shouldn’t be ignored. There has never been a stretch of market instability with just a single instance of the VIX closing four standard deviations higher. 

Volatility, even at the extremes, tends to cluster. 

“If we stick religiously to the data, it is entirely rational to expect a difficult next 3 months (slightly negative returns) before markets start to perk up later in 2025 and into 2026,” DataTrek co-founders Nicholas Colas and Jessica Rabe said. 

Still, investors may be leaning into what’s been dubbed the Trump put, or the idea that the president will dial back tariffs if stocks drop far enough.

The White House did, after all, delay most of its trade measures within 24 hours of the extreme VIX spike.

But crafting economic policy around investors’ pain thresholds is a risky business. Particularly with how unpredictable the current administration has behaved, it may not be wise to gamble portfolio holdings on political intervention. 

For now, investors seem to be banking on a presidential backstop that may never materialize.

If historic volatility persists, that optimism could take a near-term bludgeoning. 

Market snapshot

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Elsewhere:

📊 A massive earnings week comes due. More than 120 companies from the S&P 500 report quarterly results this week, including giants like Tesla, Alphabet, Boeing, Chipotle and more.

🏦 The Fed’s independence is in question. Chicago Fed President Austan Goolsbee said Sunday he hopes people do not think political pressure can shape monetary policy. He said countries where politics and central bank decisions mix have worse inflation rates and slower growth. (Reuters)

Rapid-fire:

• Trump’s tariffs push Japan, South Korea, and Taiwan to consider investing in an Alaska gas project (CNBC)

• US-Mexico border crossings have fallen to the lowest in decades since Trump took office (WSJ)

• “Shadow banking” accounts for $250 trillion, or about half of the world’s financial assets (Fortune)

• An online marketplace for used tech devices says it’s seen sales triple since Trump announced tariffs (CNBC)

• AI is shrinking company headcount and redefining what’s necessary to build a business (Blog)

• Lower oil prices are expected to weigh on Russia’s economy and squeeze its military budget (WSJ)

• Tariffs are so uncertain that economic data barely matters to stock investors (Opening Bell Daily)

Last thing:

About me:

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day, unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else. Feedback? Reply to this email, ping me on X @philrosenn, or write me directly at [email protected].