Bank of America Warns of Stock Market Shock Risk as VIXEQ Hits 50, Index Divergence at Dotcom Bubble Levels

According to Bank of America, on Tuesday (July 16), the stock market is showing warning signals similar to those preceding the dotcom bubble. The bank identified a significant divergence: individual stock volatility is rising while overall market volatility remains subdued.

Data from the Chicago Board Options Exchange (CBOE) shows the gap between the S&P 500 component stock volatility index (VIXEQ) and the VIX has reached historic highs. VIXEQ, which measures individual stock volatility, stood at approximately 50 points, up 46% year-to-date, while the VIX (market-wide "fear gauge") was at 16 points, up only 13% year-to-date. Bank of America's equity derivatives research team said individual stock volatility has returned to pre-bubble levels, stating: "The gap between individual and index volatility is approaching extreme levels from the dotcom era. Market shock risk is real."