Warning signals fully activated! UBS warns US stock market vulnerability hits nearly two-year high; last similar signal triggered a VIX surge.

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The fragility of the U.S. stock market is quietly building up.

On August 25th, according to MarketWatch, the UBS "Turbu-lens" index, used to measure the fragility of the U.S. stock market, recently rose to 1, reaching the highest reading of the indicator, for the first time since the end of 2024. UBS strategists bluntly stated, "The market has obviously become more fragile." Meanwhile, as the September Federal Reserve meeting and the November U.S. midterm elections approach, option market pricing of future volatility in the S&P 500 index has also heated up.

It is noteworthy that the last time the "Turbu-lens" index rose to 1 coincided with the period after the 2024 U.S. presidential election and just before the Federal Reserve's meeting, after which market volatility significantly climbed. Now that the indicator has reached an extreme value again, it has heightened investor alertness to potential market turmoil.

"Turbu-lens" is constructed by a team of strategists led by Maxwell Grinacoff, UBS Head of U.S. Equity Derivatives Research, and integrates multiple indicators including high-yield corporate credit default swaps (CDS), G10 FX volatility, and S&P 500 commodity trading adviser (CTA) positions, to provide a forward-looking assessment of market fragility.

Two Major Risk Events Approaching, Volatility Trading Heats Up

UBS strategists believe that risk pricing in the current market mainly revolves around two major events: the September Federal Reserve FOMC meeting and the November U.S. midterm elections. As these events approach, the options market has begun to factor in the possibility of significant S&P 500 index volatility around those times.

UBS pointed out that market fragility is rising, and investors' sensitivity to the risks of these two major events is also increasing. Especially the midterm elections, the results may influence the direction of U.S. fiscal, trade, and other policies, further amplifying the market's pricing of policy uncertainty.

However, UBS also emphasized that the "Turbu-lens" index reaching an extreme value does not necessarily mean market turmoil is certain to occur. The true uncertainty at present is what catalyst will actually turn this fragility into real volatility.

In other words, the signal from this indicator is that the market is more susceptible to shocks, not that shocks themselves have already occurred. Against the backdrop of entangled Federal Reserve policy paths and the U.S. political calendar, whether the market can smoothly digest the two major risk events—the September rate meeting and November midterm elections—will be key to observing volatility trends going forward.

Risk Warning and DisclaimerThe market carries risks and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment targets, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at your own risk. ```