Goldman Sachs warns that the “fear index”, or VIX gauge of market volatility, is sending a signal not seen in more than two decades.

Typically, when the stock market rises, fears subside. But in recent years, Goldman said in a research note, this pattern has been upended. As the benchmark S&P 500 Index has soared to new highs, the VIX has, too.

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By tracking the VIX highs that correlate to S&P 500 peaks, the bank found that the VIX —which at the time of the 3 September note was at about 26.6 — surpasses all the index’s highs going back to March 2000.

In other words, this is the highest the volatility gauge has been at a time when the S&P 500 was also at a peak, going back to the turn of the millennium.

“US equity markets have shown a strong ‘vol up, spot up’ pattern, driven by single stock markets but influencing the VIX,” Goldman analysts including Rocky Fishman wrote to clients on 3 September. “Continuing a three-year pattern, each new high for the S&P 500 has come with a higher VIX.”

See the Goldman Sachs chart below:

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One factor at play here is a risk premium for the US election in November, Goldman Sachs said. Those jitters have helped spur rallies in the October VIX future, which includes the 3 November presidential vote, and the even the November future, which Goldman says “may be elevated due to concerns that election results take longer than normal to be processed”.

“And then there’s the Softbank element,” Neil Wilson, head analyst at Markets.com, told Financial News.

The Wall Street Journal reported, citing people familiar with the matter, that SoftBank some time in the spring spent about $4bn buying call options tied to the underlying shares of big tech names including Amazon, Microsoft and Netflix. It also sold call options at far higher prices.

Call options are bullish bets that pay off when the underlying security rises in value.

Investors and analysts told the WSJ that the SoftBank move has turbocharged tech sector stocks. That’s helping to mask real worries about the market, says Wilson.

“People are expecting a pullback and are worried that things aren’t stable,” he said. “There’s probably as many bears as bulls right now. Rallies are all in a handful of stocks during a pandemic and election risks. The market melted up way more than it would have done,” if not for the Softbank trades, he said.

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Goldman wrote: “What is particularly unusual this time is that realised volatility on the index has remained low, (in part because of negative Growth-Value correlation), with one-month realised vol at just 11%, so the increase in volatility is coming in the form of elevated vol risk premium.”

Elevated volatility risk premium can be described as a sort of insurance policy for sellers of the options, to protect them against the risk of losses during periods when realised volatility suddenly spikes.

Goldman didn’t remind clients what happened in 2000, the last time the VIX and the S&P 500 corresponded in such a way: The dot-com bubble popped starting in March 2000, and the tech-heavy Nasdaq tanked some 77% from its peak to a low in October 2002.