Is the US stock market dropping like in 2018?
The Bank of America derivatives team pointed out that U.S. stocks experienced their third largest decline since 2022 on March 10, with the S&P index dropping 2.7%. Although the VIX index rose to over 20, the market did not show signs of panic. Bank of America believes that the government may choose to help ordinary people rather than Wall Street, which could lead to continued declines in U.S. stocks during economic adjustments. The current trend of U.S. stocks and the VIX is similar to that of 2018
Bank of America’s derivatives team observes the trends of U.S. stocks and VIX:
On Monday (March 10), the S&P index (-2.7%) experienced its third worst day since 2022 (the previous two were on August 5, 2024, and December 18, 2024). Meanwhile, although the VIX index rose to over 20, its responsiveness to stocks or beta coefficient is far smaller than in August and December of last year.
Bank of America believes this indicates that the market is not in panic, and still holds that if the market truly fails, policy put options are likely to be realized. However, the risk facing the U.S. stock market during this period is that the government is willing to endure some pain to help ordinary people rather than Wall Street. Given the heavy U.S. debt burden and the government's clear focus on lowering interest rates, the 10-year U.S. Treasury may be more important than stocks (i.e., bond put options), which may further allow the U.S. stock market to decline during the economic rebalancing and "detox period."
Currently, the trends of U.S. stocks and VIX are more similar to those in 2018 (as shown in the figure).
