The stock market's fear gauge is back at pre-pandemic lows, and it's signaling big upside ahead, says Fundstrat's Tom Lee

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  • A decline in stock market volatility over the last week could suggest upside ahead for stocks, says Fundstrat's Tom Lee.
  • On Monday the Cboe VIX Volatility Index hit 18.88, the lowest level in over a year.
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The stock market's fear index fell to its lowest point since the start of the pandemic, in a move that could suggest further upside in markets, according to Fundstrat's Tom Lee.

On Monday the Cboe VIX Volatility index closed at 18.88, the lowest point since February 2020. The index has been moving downward over the last week, a "risk-on signal," according to the Fundstrat head of research.

Lee said in a Tuesday note that the VIX's moves, along with the recent moves in interest rates could signal upside ahead for stocks.

Financial markets have been digesting whether a surge in inflation will cause a rise in interest rates, two risks that markets have not had to grapple with for much of the past decade, according to Lee. He expects markets to over-react and be very sensitive to rising interest rates, but in the past few days, the yield on the US 10-yr Treasury has flattened, and the VIX has fallen. The VIX signaling is encouraging despite the pressures on stocks caused by rising rates.

"So, VIX declining is a positive signal, particularly in the context of this recent rise in interest rates," Lee said.

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