Is This Under-the-Radar Index Signaling Disaster for Stocks This Week? Here’s What History Tells Us.
For years, the bulls have been running the show on Wall Street. Over the last five months, we’ve witnessed the widely followed S&P 500 (SNPINDEX: ^GSPC), growth-driven Nasdaq Composite (NASDAQINDEX: ^IXIC), and historic Dow Jones Industrial Average (DJINDICES: ^DJI) briefly reach psychological plateaus of 7,000, 24,000, and 50,000, respectively. Although history has shown that patience…
For years, the bulls have been running the show on Wall Street. Over the last five months, we’ve witnessed the widely followed S&P 500(SNPINDEX: ^GSPC), growth-driven Nasdaq Composite(NASDAQINDEX: ^IXIC), and historic Dow Jones Industrial Average(DJINDICES: ^DJI) briefly reach psychological plateaus of 7,000, 24,000, and 50,000, respectively.
Although history has shown that patience and perspective are a winning combination for long-term investors, the very near-term looks much dicier for stocks. While all eyes are seemingly on crude oil prices, one under-the-radar index is signaling a potential disaster for equities.
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Before going any further, a quick word about predictive indicators: they can’t guarantee the future. While some metrics have strongly correlated with future events, predicting short-term directional moves in the Dow, S&P 500, and Nasdaq is still more luck than science.
With the above being said, one oft-overlooked volatility-based forecasting index intimates that business is about to pick up on Wall Street.
Most investors are probably familiar with the CBOE Volatility Index(VOLATILITYINDICES: ^VIX)(commonly known as the “VIX”), which measures 30-day expected volatility based on S&P 500 stock options. A higher VIX reading translates into heightened projected volatility in equities.
However, most investors haven’t heard of the Merrill Lynch Option Volatility Estimate (MOVE), or MOVE Index from Bank of America. Whereas the VIX measures expected volatility in stocks, the BofA MOVE Index measures expected volatility in Treasury yields (two-year through 30-year bonds).
On Friday, March 20, the BofA MOVE Index skyrocketed 28% to close at 108.84 — its highest close since late April 2025. It’s also effectively doubled since late January.
The implication is simple: bond yield volatility is increasing due to the Iran war, and the bond market is pricing in the prospect of a higher inflation rate. A historic energy supply disruption caused by Iran’s virtual closure of the Strait of Hormuz has sent oil prices soaring and may force the Federal Reserve’s hand.
The central bank has been in a rate-easing cycle since September 2024, but it may be coerced by future economic data to halt or even reverse its dovish monetary policy stance. This would be terrible news for a stock market that entered 2026 at its second-priciest valuation in history, dating back to January 1871.
Image source: Getty Images.
While the BofA MOVE Index signals a heightened probability of short-term volatility and weakness in stocks, it’s important to remember that historical precedent goes both ways.
Although some previous instances of the MOVE Index doubling in a very short time frame have been followed by double-digit percentage declines in the Dow, S&P 500, and Nasdaq Composite, a significant stock market correction or crash is far from a given. For instance, Wall Street’s major stock indexes hardly flinched in March 2023, while the MOVE Index soared during the short-lived regional banking crisis.
Additionally, history has shown that bond yield volatility events tend to pass quickly. This isn’t to say that outsize yield vacillations can’t disrupt the stock market or tug on investors’ heartstrings. Rather, it’s to look at the stock market objectively and recognize that bull markets last considerably longer than bear markets or crash events.
If the BofA MOVE Index is right, stock market volatility is going to pick up in the coming days — but don’t expect it to last too long.
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Bank of America is an advertising partner of Motley Fool Money. Sean Williams has positions in Bank of America. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Is This Under-the-Radar Index Signaling Disaster for Stocks This Week? Here’s What History Tells Us. was originally published by The Motley Fool
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