On Wednesday, the VIX, Wall Street's fear gauge, experienced its second-largest increase.
On Wednesday, the VIX, Wall Street's fear gauge, experienced its second-largest percentage increase in history following the Federal Reserve's announcement that it would slow down its rate-cutting campaign.
The stock price surged 74% to close at 27.62, up from around 15 earlier in the day. This surge is the second-greatest in history, following a 115% leap to above the 37 handle in February 2018 due to a blow-up in funds tracking the volatility index.
The central bank's decision to lower interest rates only twice next year, instead of four cuts as previously projected, has alarmed investors and caused the Dow Jones Industrial Average to fall by 1,100 points, marking its 10th consecutive loss.
This year, the VIX had been below 20 for most of the time, which made investors concerned about the market's complacency.
The VIX is determined by the cost of put and call options on the S&P 500. A sudden increase could signal a surge in demand for put options to safeguard against a market drop.
In 2024, there was another significant increase in the VIX, which was the third-biggest surge in history. On Aug. 5, 2024, the VIX experienced a roughly 65% increase due to fears of a U.S. recession and a major unwind in the yen carry trade. The VIX closed above 38 that day, and on an intraday basis, it briefly topped 65.
On Thursday, the VIX dropped more than 25% from the previous day, hovering just above the 20 handle.
Markets
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