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NEW YORK, May 13 (Reuters) – A surprising lack of panic in the U.S. stock market as measured by Wall Street’s “fear gauge” is keeping some investors from calling a bottom on an already bruising equity selloff.

Since 1990, the Cboe Volatility Index .VIX has hit an average level of 37 at market bottoms, compared with its most recent level of around 32.

Some investors believe that means stocks are yet to see the crescendo of fearful selling that has sometimes accompanied past market bottoms, even though the S&P 500 has already fallen nearly 20% from its record high, a level that would confirm a bear market.

“Sentiment is negative out there but there is no real fear, there is no sense of panic,” said Kris Sidial, a co-founder at volatility arbitrage fund The Ambrus Group. “The one thing that you are not seeing is capitulation.”

The VIX – which measures the expectation of stock-market volatility as expressed by options prices – stands far above its long-term median level of 17.6.

Many investors believe volatility is likely to remain elevated as markets digest a hawkish Federal Reserve, soaring inflation and geopolitical uncertainty stemming from the war in Ukraine.

While it’s not necessary for the VIX to shoot higher before calm returns to markets, the index’s failure to climb well above the mid-30s may be a sign that selling in stocks is not yet washed out, making it more dangerous for those looking to buy on weakness, market participants said.

“I just don’t think we have seen that sort of event that marks a bottom,” said Steve Sosnick, chief strategist at Interactive Brokers.

The VIX had logged a high close of 82.69 during the March 2020 COVID-19 driven selloff, after which the S&P 500 more than doubled as the Fed slashed rates and implemented other easy money policies to support the economy. The index hit 36.07 in 2018, when stocks stopped a hair short of entering a bear market on worries over tighter Fed policy, and topped out at 80.86 during the Great Recession.

“I would love to see more panic and absolute flushing of this market,” said Mike Vogelzang, chief investment officer at CAPTRUST. “I’d love to see VIX at 40 or 45.”

One reason why the VIX – which is calculated based on S&P 500 options contracts – may be relatively subdued is that the gradual grinding selloff has left investors lighter on their allocation to equities.

Investors’ aggregate equity positioning has slipped to the levels lowest since the 2020 COVID-19 selloff, analysts at Deutsche Bank estimate.

Meanwhile, options positioning in S&P 500 and the VIX show a market that is very well hedged against declines, said Brent Kochuba, founder of analytic service SpotGamma. With defensive positions in place, investors see little hurry to buy more put options even as the market grinds lower, Kochuba said.

The VIX is far from the only sign investors look at when trying to determine whether markets have bottomed, and at least one volatility measure – one month historical volatility – shows markets may be closer to a turning point than indicated by the VIX.

That measure of choppiness stands at 29, its highest since July 2020 and about 4 points above where it stood on the day the S&P 500 bottomed during the last 54 instances of corrections and bear markets going back to 1928, a Reuters analysis showed.

Still, some believe that any recovery in stocks is unlikely to last without a big “crash-up” in volatility.

“What you have now is people hanging on and hoping for a bounce,” said Patrick Kaser, portfolio manager at Brandywine Global Investment Management.

To mark the end of the selling, however, the market needs a “a moment of high profile failure and pain,” Kaser said

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Davide Barbuscia; Editing by Ira Iosebashvili and Sam Holmes)