Wall Street’s fear index, VIX, recorded its second-largest surge on record on Wednesday.
A television station is broadcasting the Federal Reserve’s interest rate cut at the New York Stock Exchange (NYSE) on Wednesday, December 18, 2024.
Michael Nagel | Bloomberg | getty images
Wall Street’s fear index, the VIX, surged by its second largest margin in history on Wednesday after the Federal Reserve announced it would scale back its rate-cutting campaign, rattling stock markets.
that CBOE Volatility Index It soared 74% and closed at 27:62, up from about 15:00 this morning. The surge is the second largest in history, following a 115% jump above 37 in February 2018, when funds tracking the volatility index exploded.
Wednesday’s move comes after the central bank said it would cut interest rates only twice next year. That’s lower than the four cuts expected in September, surprising investors who want lower interest rates to continue fueling the bull market. The Dow Jones Industrial Average fell 1,100 points, falling for the 10th consecutive time.
Typically, a VIX value greater than 20 indicates a higher level of fear in the market. But the VIX has been suppressed below that level for most of this year, worrying investors who believe the market has become overly complacent.
VIX is calculated based on put and call option prices on the S&P 500. A surge could indicate investors are looking to buy put options for protection during a downtrend.
CBOE Volatility Index, 5-day
Nonetheless, 2024 saw another significant surge in VIX. The third largest VIX spike in history occurred on August 5, 2024. VIX rose about 65% to close above 38. Intraday VIX briefly exceeded 65 that day.
On Thursday, the VIX was last hovering just above the 20 handle, down more than 25% from the previous day.
