VIX to Become Key Indicator for Equity Markets and Bitcoin: Thomas Lee

• Managing Partner and head of research at Fundstrat Global Advisors, Thomas Lee, has outlined why the VIX – a real-time volatility index from the CBOE – will become an important indicator for equity markets and possibly Bitcoin in the coming months.
• Lee expects a 20% rally for the S&P 500 this year, as inflation will fall faster than the Fed recently forecasted, which will have a decisive impact on the VIX, causing it to decline in value.
• Thursday will be a telling day, with core CPI being below consensus, suggesting that the original Fed forecast of 4.8% for PCE is 60 basis points too high.

According to Thomas Lee, managing partner and head of research at Fundstrat Global Advisors, the VIX – a real-time volatility index from the Chicago Board Options Exchange (CBOE) – will become an increasingly important indicator for equity markets and possibly Bitcoin in the coming months.

The VIX was created to quantify market expectations of volatility for the S&P 500, and is future oriented, meaning that it only shows the implied volatility for the next 30 days. The rule of thumb is: if the VIX increases, the S&P 500 is likely to decrease, and if the VIX value decreases, the S&P 500 is likely to remain stable or increase.

Lee expects a 20% rally for the S&P 500 this year, based on the fact that inflation has surprised the Fed on the downside last year and will inversely surprise it this year. This will have a decisive impact on the VIX, causing it to decline in value.

„The bond market volatility is below its 200 day [average]. If that happens to the VIX, we would be at 17,“ Lee claims and continues to say that „since the 1950s, following a negative year, if the VIX is lower on average than the prior year, we are up an average of 22%. So I think we are set up for a 20% year.“

Thursday will be a telling day, with core Consumer Price Index (CPI) being below consensus, suggesting that the original Federal Reserve (Fed) forecast of 4.8% for Personal Consumption Expenditures (PCE) is 60 basis points too high.

If Lee’s prediction is correct, it will be a bullish sign for equity markets and possibly Bitcoin, as the VIX will be an increasingly important indicator for assessing the current market situation. It will also suggest that the Fed’s forecast was too high, and that inflation is likely to be lower than expected. For investors, this can be a sign to reassess their portfolios and make the necessary adjustments.