September 9, 2024
Towards the end of July and early August, fear took over markets. On Aug. 5, it evolved into a full-blown panic that hit everywhere.
The CBOE Volatility Index (VIX) is often considered the market’s fear gauge. It measures expectations for near-term price shifts in the S&P 500. Since 1991, its average value is around 19.
But during Aug. 5 trading, VIX went from below 20 all the way up to above 60. It just about tripled and hit the highest level since the COVID-19 pandemic began to take over in March 2020 and the great financial crisis in 2008.
By the end of Aug. 5 trading, VIX closed above 38, which was still one of the highest levels in years. For the day, the Nasdaq Composite Index and S&P 500 finished down about 3%, the Russell 2000 Index fell 3.2%, and the Dow Jones Industrial Average dropped 2.6%.
Markets haven’t seen such widespread volatility and value loss since 2020. The resulting panic caused issues for trading platforms at major brokerages because everyone rushed for the exits at the same time.
It didn’t take much to trigger selling. Manufacturing data showed evidence of contraction and weekly jobless claims increased by almost 250,000.
While the market fell fast, it recovered just as quickly. Consumer spending data was positive, and within a couple weeks the dip was gone and all-time highs were back in sight.
Still, the takeaway is clear – volatility and some weakening mean fear is back.
Even so, last month Federal Reserve Chair Jerome Powell said it’s time to shift policy. Markets loved it because many investors think interest rate cuts are the cure for everything.
However, it doesn’t mean stocks are guaranteed to rise. Even if they do, it could be a choppy ride.