Don't fear the VIX

NEW YORK (CNNMoney.com) -- You think things have gotten a little volatile lately? Please. Anyone remember fall 2008?

Worries that Europe can't contain its debt woes and that Greece's problems are just the tip of the iceberg have amped up investor jitters in the last week. Signs that China is slowing its growth to get ahead of inflation pressures also haven't helped. In response, the stock market's slow and steady pace of the last few months has gone out the window, bringing the return of big swings.

The Dow Jones industrial average (INDU) has ended higher or lower by over 100 points in five of the last seven sessions, rattling investors who had grown accustomed to the stately pace of the advance over the previous eight weeks. During that gentle stroll, the Dow managed its longest up streak in six years.

In those same seven sessions, the stock market seesaw has sent the CBOE Volatility (VIX) index, or the VIX, Wall Street's main fear gauge, up 51% to three-month highs on a closing basis.

At its high on Wednesday, the VIX stood 75% above its close of April 12, which marked a 3-year low. The VIX and the stock market tend to move in opposite directions.

Yet despite all the hemming and hawing, the market really hasn't been all that volatile. Between the high on April 27 and the low on Wednesday, the one-week swing on the Dow was 404 points.

But year-to-date the Dow is still up 4% and stands higher than it did a month ago. There are still plenty of signs that the U.S. recovery is moving forward.

Let's compare the recent slide to the seven trading sessions between Oct. 7, 2008 and Oct. 15, 2008. During that period, the Dow ended higher or lower by an average of 464 points a day, and the swing between the high and low was 2,241 points.

During all that turmoil, the VIX jumped just 25%.

A little over a week later, on Oct. 24, 2008, the Dow plunged 312 points as part of a global market bloodletting and the VIX briefly hit an all-time high of 89.35 before closing off those levels.

During that time, the jumps in the VIX clearly reflected what was going on around the world.

Investors were in full-blown panic mode as credit seized up, Congress swooped in to prop up falling banks and signs pointed to the coming of the second Great Depression. Money was yanked out of stocks and dumped into cash or low-yielding bonds. The yield on the three-year note, seen as the safest place to hide cash short-term, fell to a 68-year low of zero percent.

When the market was pricing in Armageddon, the VIX was in tune with the reality.

That's not the case now. The threat of Europe's debt problems spreading is out there, but it's been out there for months. It's one of the factors that caused the 9% selloff on the S&P 500 between Jan. 19 and Feb. 4. But since that time, stocks have recovered and moved higher. The S&P 500 is currently up 4.5% year-to-date and up 10% since its February lows.

Most recently, European leaders pledged to provide Greece with $146 billion in loans over three years, taking the edge off worries that the nation would default on its growing debt. But at the same time, Portugal has moved into center stage with Moody's threatening to join Standard & Poor's and Fitch in downgrading its debt ratings. Spain, Italy and Ireland, the other so-called PIIGS, remain vulnerable as well.

However, experts argue that fears are overblown that Europe's problems will counteract all the global growth that's underway. The euro, at a nearly one-year low, will likely continue to weaken versus the dollar, but a stronger dollar is a good thing for U.S. markets over time.

Besides, the fiscal situation in the U.S. is more encouraging, even with high levels of government spending driving up the deficit.

Most economists agree the recession in the U.S. likely ended last summer, and while it doesn't feel that way yet to many individuals, the economy is in recovery mode.

Corporate earnings in the first quarter rose 54% from a year ago, according to the latest from Thomson Reuters. Recent readings on manufacturing, housing and even the jobs market show a healing is well underway. Friday's April jobs report is expected to show companies added 187,000 jobs to their payrolls after adding 162,000 in March. It's a pace that is still too modest to promote growth, as it doesn't fully cover all the new entrants into the job market, but it still shows big progress.

Sam Stovall, Standard & Poor's chief investment strategist, said in a note Wednesday that the international anxiety will likely cost the market between 10% and 15% in the short term. A 10% slide is the technical definition of a correction. But Stovall expects the market to recoup that and move higher by year end, with S&P continuing to forecast the index will end the year at 1270, a gain of 9% off Wednesday's close.