By The stock market is experiencing a surge in expected volatility, with the closely monitored Cboe Volatility Index (VIX) reaching its highest reading since May. As the S&P 500 continues to decline, trading at its lowest level since early June, investors are growing increasingly concerned about market turbulence.
VIX Index Hits New Highs
The VIX, also known as the “fear gauge,” rose by more than 2 points on Tuesday, reaching a level of approximately 19.08. This surpassed its previous closing high of 17.89 on August 17 and is on track to achieve its highest finish since May 25 when it closed at 19.14, according to Dow Jones Market Data. The VIX, derived from S&P 500 index options, is a reliable indicator of expected volatility over the next 30 days.
Subdued Year for Volatility
Throughout 2023, the VIX has remained relatively subdued, trading well below its long-term average of around 20. This period of stability was accompanied by a strong rally in stock prices. However, recent market setbacks have pushed the VIX higher, with the S&P 500 currently down over 5% from its peak on July 31.
Market Downturn and Economic Indicators
The S&P 500 fell by 1.6% to reach its lowest intraday level since June 8th, according to FactSet. The Dow Jones Industrial Average dropped around 400 points, signaling a potential close below its 200-day moving average for the first time since March.
Various economic indicators contribute to this market downturn. For example, oil prices have surged by 34% since June, while the yield on the 10-year Treasury note has risen from 3.7% to 4.5% without a rate increase from the Federal Reserve. In addition, the outstanding credit card balances have exceeded $1 trillion, and next month, student loan payments will resume for approximately 30 million people, averaging around $400 per month. These conditions, described as stagflationary by Alex McGrath, Chief Investment Officer for NorthEnd Private Wealth, have led to a 40% increase in the VIX during September. McGrath further predicts continued volatility throughout the remainder of the year.
For more insights into the impact of Wall Street’s shrinking fear gauge on stocks, refer to DataTrek’s analysis.
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