In a recent development, a closely watched gauge of expected U.S. stock-market volatility, known as the VIX or Wall Street's "fear gauge," has reached its highest reading since March. However, despite the spike, market analysts are cautioning against considering it as a "buy" signal. The S&P 500 index is currently testing crucial support levels, making contrarians hesitant to seize the opportunity.

On Friday, the VIX soared as high as 21.83, marking its highest intraday reading since late March. This comes after a streak of 101 trading days without a close above 20, the longest such run since October 9, 2018. According to Jonathan Krinsky, chief market technician at BTIG, the underlying breadth issues in the market do not position the VIX as a buy signal, despite historically favorable outcomes after streaks like this.

The VIX, derived from options, serves as a measure of expected S&P 500 volatility over the next 30 days. Its long-run average hovers just below 20. Low readings indicate extreme calm and are often regarded as sell signals, while high readings can be associated with selling frenzies.

Nevertheless, it is important to exercise caution when interpreting the VIX's movement. Mark Arbeter, president of Arbeter Investments LLC, stresses that the VIX primarily reflects the velocity of the S&P 500 and is not a leading indicator. When there is a swift and substantial decline in the S&P 500, the VIX tends to spike. However, a similar decline spread out over a longer period has minimal impact on the VIX.

Despite the recent breakout, analysts note that the VIX has remained relatively subdued. It currently sits below its 2022 average of 25.5, as highlighted by strategists at UBS. The VIX pulled back slightly from its early peak on Friday, reaching 21.09 in recent trade. Meanwhile, the S&P 500 was down 0.5% near 4,254, potentially heading for a weekly loss of 1.7%. The Dow Jones Industrial Average also faced a weekly decline of 1.1%. The S&P 500 managed to recover slightly from its session low after testing support levels near its 200-day moving average around 4,233.

The prevailing market weakness on Friday may indicate apprehension due to the Israel-Hamas war. However, the overall impact on assets has remained relatively subdued thus far. Investors are closely monitoring oil futures for potential disruptions in energy supplies, which could pose the biggest risk to global markets and the economy.

Treasurys saw a rise on Friday, leading to lower yields. However, these yields have experienced a sharp decline since the start of the war, failing to attract significant haven bids typically observed during periods of heightened geopolitical tensions. The 10-year Treasury note yield is on track for weekly gains but remains below the highs set in late September 2023 before the Hamas attack on Israel on October 7.

Enrique Diaz-Alvarez, chief risk officer at financial services firm Ebury, noted that markets have been relatively blasé about the situation so far. Minimal financial or macroeconomic impacts are currently priced in, with even the oil price showing minimal movement since the attacks.

As market volatility persists, investors are encouraged to closely monitor developments and exercise caution in their decision-making.