Wall Street’s Fear Gauge Looks Terrified

Wall Street’s favorite panic meter, the VIX, just had a meltdown of its own. The “fear gauge” spiked 74% on Wednesday, the second-biggest jump in its history, after the Federal Reserve pulled a hawkish curveball, announcing plans to slow its rate-cutting spree. The VIX shot from 15 to 27.62, rattling nerves and sending the Dow Jones plummeting 1,100 points.

For the uninitiated, the VIX (short for CBOE Volatility Index) measures 30-day market jitters using S&P 500 options prices. A reading above 20 typically signals fear in the air, and this year, the VIX has been eerily calm. Too calm, some would say. Wednesday’s spike snapped the market out of its complacency, and hard.

The Fed’s move to scale back from four rate cuts projected in September to just two next year spooked a market hooked on cheap money. Investors scrambled for put options to hedge against potential declines, sending volatility into overdrive.

This isn’t 2024’s first VIX freakout. Back in August, recession fears and a yen carry trade unwind pushed the VIX past 65 intraday in what became its third-largest surge ever.

By midday Thursday, the VIX cooled to just above 20, but the message is loud and clear: Wall Street’s fear gauge is back online.