Wall Road’s so-called worry index is surging, contributing to ongoing uncertainty concerning the state of the inventory market.
The Chicago Board Choices Trade’s CBOE Volatility Index (VIX) is a measure of the market’s anticipated volatility primarily based on S&P 500 choices. Over the previous six months, the VIX has almost doubled from a low of 12.77 on Dec. 6 to its present studying of 27.86.
For context, that represents the best studying since final summer season’s market downturn when the VIX registered 38.57 on Aug. 23. Zooming out, on the five-year VIX chart, volatility has now reached its highest stage since Oct. 21, 2022, when it registered 29.69 on the tail finish of the final bear market.
Since President Donald Trump assumed workplace in January, market volatility — as measured by the VIX — has risen almost 85%.
Elements fueling volatility
The surge within the VIX could be attributed to a number of components. Softening financial knowledge — equivalent to a weaker-than-expected February jobs report, unemployment claims rising to their highest stage since October 2024 and cooling client confidence — has contributed to uncertainty and, in flip, an increase in volatility.
Tariffs and lingering inflation are further layers, with the president’s back-and-forth declarations leaving the market in limbo. At its January assembly, the Federal Reserve paused its rate of interest cuts, citing considerations about potential fallout from the tariffs and an uptick in inflation. For January, the Client Value Index (CPI) — which measures the year-over-year change in costs of products and companies — confirmed the speed of inflation rose 3.0%. February’s CPI print is because of be launched Wednesday.
The central financial institution urged it might maintain charges regular and even entertain mountain climbing charges if its 2% CPI goal is threatened. In the meantime, Trump has once more delayed tariffs towards Mexico and Canada, the U.S.’s two largest commerce companions, additional fueling uncertainty.
The dearth of financial readability has sparked fears of a recession after the Federal Reserve Financial institution of Atlanta final adjusted its gross home product forecast for the primary quarter of 2025. The downward revision noticed the financial institution’s estimate fall from almost 4% growth in late January to a contraction of two–3% this week.
Inventory market fallout
The soar in volatility has despatched the key indices spiraling, with sell-offs starting in late February. On the time of writing:
- The Dow Jones Industrial Common is deep right into a pullback, having misplaced 7.30% since its six-month excessive Dec. 4
- The S&P 500 is on the verge of a correction, having misplaced 8.41% since its year-to-date excessive on Feb. 19
- The Nasdaq has formally entered a correction, having misplaced 12.58% since its six-month excessive on Dec. 16
This has resulted in a leap in bearish investor sentiment. The American Affiliation of Particular person Traders (AAII) Sentiment Survey for the week ending Feb. 26 confirmed bearishness at 60.6% — the best studying because the survey registered 60.81% on Sept. 29, 2022. That adverse sentiment carried over into March, with the primary AAII survey of the month evidencing still-high bearishness of 57.1%.
Compounding investor fears is a notable rotation out of cyclical and development positions and into defensive positions. Over the previous month, the buyer staples sector leads all 11 S&P 500 sectors by a large margin, posting a 3.56% achieve. Over the identical time, know-how and client discretionary have suffered essentially the most, posting losses of 11.42% and 12.38%, respectively.
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