Global trade frictions escalate, causing market panic, VIX index soars to historical highs

Recently, the global trade situation has deteriorated sharply, with multiple countries successively announcing increased tariff policies, triggering a strong market reaction. This series of measures has led to rising costs for businesses, disruptions in the global supply chain, and heightened uncertainty in the economic outlook. Against this backdrop, investors are increasingly reducing their allocation to risk assets and turning to safe-haven assets, significantly increasing market volatility expectations.

The Panic Index VIX soared to 60 on April 7, reaching a historically rare high. Throughout history, the VIX index has only broken such a high point in three special circumstances, the last occurrence being on August 5, 2024, and the earliest during the COVID-19 pandemic in 2020. The current VIX index is at an extreme level, which will have a significant impact on market trends.

The VIX index is an indicator derived from the prices of S&P 500 index options that reflects the market's expected volatility over the next 30 days. It is widely used to gauge market uncertainty and panic sentiment. A higher VIX index indicates that the market anticipates more drastic fluctuations in the future and stronger panic sentiment; conversely, a lower VIX indicates a calm market with higher confidence. Historical experience shows that the VIX typically spikes during significant declines in the stock market and retreats when the stock market rises and stabilizes.

The normal level of the VIX index is about below 15-20. When it exceeds 25, it indicates that the market begins to show obvious panic, and when it exceeds 35, it falls into extreme panic. During financial crises or major emergencies, the VIX index may even exceed 50, reflecting extreme risk aversion in the market. Therefore, by observing the changes in the VIX, investors can gain insights into the strength of current market risk aversion as a reference for adjusting their investment strategies.

When the VIX index reaches above 30, it usually indicates that the market is in a state of high fear or panic. Historical data shows that in such cases, the stock market often experiences a technical rebound in the short term. Between 2018 and 2024, there have been about a dozen events where the VIX closing price first rose above 30, including the volatility storm in February 2018 and the pandemic panic in February-March 2020. Statistics show that within 7 days after these panic events, the S&P 500 index averaged an increase of about 1.4%, with an increase probability of about 73%.

Bitcoin tends to rebound strongly after extreme panic. Data estimates that the average increase of Bitcoin within 7 days after the VIX rises above 30 is about 10%, with a probability of increase between 75-80%. For example, in February 2022, when the VIX surged above 30 due to geopolitical crises, Bitcoin rose over 20% in the following week, demonstrating a rebound phenomenon similar to the alleviation of risk aversion in the stock market.

When the VIX index reaches an extreme panic peak of over 40, it often indicates that the market's extreme panic selling pressure is nearing its peak, and there is a relatively high chance of a short-term rebound. However, since this situation is extremely rare and the sample size is limited, the statistical results are only of reference significance. In actual operations, a VIX above 40 is more of a signal confirming that the market is in an extreme panic state, and the subsequent market trends still need to be judged in conjunction with fundamental information.

In contrast, when the VIX index is in a low volatility range below 15, the market is usually in a relatively calm state, with investor sentiment being more optimistic and demand for hedging being lower. However, the subsequent trend during this time is not as clearly consistent as it is when VIX is high. In a low VIX environment, stock indices tend to maintain a gradual upward trend or small fluctuations, but one must be wary of possible complacency in the market; if a sudden negative event occurs, volatility and declines may significantly amplify.

For Bitcoin, the trend during low VIX periods lacks a clear direction. Statistics show that its 7-day average increase is only about 2%, with an upward probability of approximately 60%. The predictive value of low VIX for Bitcoin's subsequent trend is not significant and must be considered in conjunction with the funding sentiment and cycles of the cryptocurrency market itself.

In summary, the uncertainty and risks facing the global market are on the rise, and the VIX index being at an extremely high level reflects this situation. When formulating investment strategies, investors need to closely monitor the changes in the VIX index, while also considering other market indicators and fundamental factors, to make more comprehensive and rational judgments. Although the market may continue to fluctuate in the short term, historical experience shows that extreme panic often harbors potential investment opportunities. The key is to find a balance between risk and opportunity, maintaining a calm and rational investment attitude.