Stocks still have a long way to go before selling pressure stemming from the Middle East conflict subsides, according to Wolfe Research. The CBOE Volatility index (VIX) , Wall Street’s so-called fear gauge, spiked as high as 35.3 on Friday. It has since pulled back to about 26, though that level still points to big market swings ahead. Investors have been on high alert since the U.S.-Iran war began late February. Since then, the S & P 500 has fallen around 3%. Investor fear also rose alongside oil prices. Both Brent crude and West Texas Intermediate futures have soared around 40%, with the former trading back around $100 per barrel. .VIX YTD bar VIX year-to-date chart Despite these moves, stocks are still near record levels. The S & P 500 sits on 4% below its all-time high set in Jan. 28. “While we’ve seen increasing fear during this selloff, as the VIX hit ~35 on an intraday basis Monday (3/9), our sense is that max fear has not yet been reached,” strategist Chris Senyek wrote. During other moments of extreme market volatility like the Covid-19 pandemic and the Silicon Valley Bank collapse, the VIX skyrocketed above 40, he said. It wasn’t until after this level was met in the fear gauge that the stock market bottomed and turned higher in both instances. Senyek sees continued downside for stocks and encourages investors hold off on increasing exposure to riskier names. “Elevated volatility from the conflict in Iran and growing worries over cracks emerging in private credit give us reason to believe that the near-term path for stocks remains to the downside and, as a result, we would not be dialing up risk exposures,” he wrote. Markets will continue to decline until “investors reach capitulation levels,” indicated by a VIX above 40 or “headlines point to a resolution in the Middle East,” Senyek noted.