Wall Street’s Sudden Fear of Market Turmoil is Good News, Say Investment Analysts

Image Credit: iStock Images, Andrey Krav.

Sign up for smart news, insights, and analysis on the biggest financial stories of the day.

Analysts at several of Wall Street’s top banks are worried about the U.S. stock market — six major institutions sent out warnings last week that a storm is on the way.

But new research says Wall Street’s fear is actually a good thing and that, while the banks freak out, investors can relax knowing history is on their side.


Last week, investor notes from Deutsche Bank, Goldman Sachs, Morgan Stanley, Citigroup and Bank of America expressed concerns over company valuations at unprecedented extremes, a seven month long stock rally, softening economic data, and the Federal Reserve’s plan to taper stimulus. Taken together, it all looks like a game of Jenga that’s about to be over.

But analysts at Sundial Capital Research crunched the numbers on how the market has performed when fear on Wall Street peaked alongside stock values. There’s surprisingly good news:

  • Sundial went back and looked at times the S&P 500 came within 1% of a record at the same time that the Cboe Volatility Index — a widely used measure of Wall Street’s expectations for volatility nicknamed the “fear gauge” — hit the upper 75% of its range. Last week marked the ninth time it’s happened since 1995.
  • The previous eight times, the S&P 500 struggled for about one to four weeks. But every single time it rallied within two months. Not once did major losses impact equities in the long term.

“In my 40 years on the Street, we have never seen six Tier 1 banks collectively call for a large decline when the market was within 1% of its all-time highs,” wrote Bensignor Investment CEO Rick Bensignor, in a note Monday. “It’s usually quite the opposite. So, I don’t think this leads to a 500-plus point decline in the SPX. 5% — sure; anytime. But 15%: I think it’s highly unlikely.”