Effects Of Italian Politics On VIX, 3 Stocks To Watch

Ryan Horch, Kapitall  Markets reacted negatively to the uncertainty surrounding Italian elections on Monday. The S&P 500, Dow, and Nasdaq were all down around 1% at the close. The root of this decline came from a senatorial election in the Euro Zone's third largest economy, which showed no party holding a majority.

If parliament remains split, Italy’s ability to maintain its reform policies will be called into question. This could endanger the stability of the Euro as a whole.  The Euro fell against the Dollar following the news to $1.31.

VIX

Another result coming from the non-result in Italy was a 25% increase in the CBOE Volatility Index (VIX). The VIX is commonly known as the "fear index" since it's a measurement of expected volatility for the 30 days to come. The VIX closed around 18, which is still a relatively low value, however if Italian electoral woes continue it is possible that the VIX may continue to rise.

Investing Ideas

Keeping in mind this jump in the VIX, we decided to run a screen for large cap stocks ($10B+), for stability, with high VIX readings in case Italian politics continue to drive the “fear index” up. Stocks with a high VIX typically outperform when volatility and fear spikes. This means that with more uncertainty in the market, these stocks tend to perform well.