High volatility in US stocks becoming the norm? "Fear Index" VIX turns net long for the first time since 2018

On October 29th, Bloomberg macro strategist Simon White put forward a viewpoint that the current U.S. stock market is adapting to an environment where stocks have upside potential and high volatility. The latest positioning data shows that market investors, especially long-short equity funds, hold significant net long positions in the U.S. stock market. This situation coincides with the volatility index (also known as the "fear index" VIX) shifting to a net long position. This is the first time since 2018 that VIX positioning has turned net long. Typically, when VIX positioning is net long, the market tends to experience a downward trend or correction phase. However, this backdrop is that the U.S. stock market is nearing historical highs, which is not only unusual but can even be considered unprecedented. While most market participants' strategies tend to reduce volatility, the increase in net long positions on VIX futures by investors indicates a changing view on market volatility. This may signal that the market is accepting high volatility as a normal part of the environment. It is extremely rare for the market to maintain such significant long positions when VIX positioning is net long. According to data, investors' net long positions in S&P 500, Nasdaq, Dow Jones, and S&P MidCap futures account for almost 20% of open interest. Meanwhile, long-short equity funds may have even higher net long positions as these funds typically use stock index futures to adjust overall Beta values to meet their investment strategies. Strategist White points out that this series of dynamics indicates that the market is viewing high volatility as a characteristic of the current bull market rather than a flaw. Inflation, loose fiscal policies, and rising geopolitical risks together shape an environment supportive of stock gains. This is because of ample liquidity, low short-term recession risks, but enough uncertainty to prevent volatility from returning to the low levels experienced in the past two years. Interestingly, stock gains are not necessarily only related to decreasing volatility. The market seems to be testing a new paradigm, which may provide investors with new opportunities and challenges