The Dow Jones has suffered the worst single-day point drop in its history, and the S&P 500 and Nasdaq have also nose-dived as the stock market fear gauge almost doubles the historical average.
The CBOE VIX Volatility Index, widely known as Wall Street’s fear gauge, hit 38 on Monday afternoon, its highest level since around the time of the Brexit vote.
The VIX is calculated using bullish and bearish option bets on the S&P 500 index SPX, and it typically rises as stocks fall.
In August 2015, the VIX surged past 50, which hadn’t been seen since the financial crisis.
But to put 38 into perspective, the historical average is 20, and any reading above that tends to indicate a bearish forecast.
And 2017, which was a horror year for the US in terms of natural disasters and the nuclear threat from North Korea, volatility was at its lowest in decades, dropping more than 17% over the year and bottoming at 9.14 in November.
It is no wonder the VIX is so high, the Dow Jones has suffered the worst single-day point drop in its history, with the industrial average plunging 1,175 points, or 4.6% points Monday, as stocks took their biggest dive in 6.5 years.
The S&P 500 index also had its worst percentage drop since August 2011, falling 4%. No sector has been spared, with energy and financials reportedly the worst performers by far.
On top of that, Nasdaq dropped 3.8%, and oil prices were also hurt, with Brent crude down 1.8% $67.37 a barrel, its biggest decline in more than a month.
Monday’s sell-off surpassed a 777.68 points drop on the Dow Jones on 29 September 2008, when Congress rejected a bailout plan following the collapse of US investment bank Lehman Brothers earlier that month.
David Kelly, chief global strategist at JPMorgan Asset Management, said it’s unlikely it is a case of equities tanking over fears of interest rate rises due to higher inflation.
“The somewhat untidy but nevertheless more plausible explanation is that both the bond market and stock market were overdue for a correction after a remarkably placid two years,” he said.
“As the markets move and commentary becomes extreme, investors would do well to maintain some scepticism about what they read on the web and focus more on the basics of fundamentals, valuation and positioning.”
That was the line taken by Donald Trump’s deputy press secretary too, with Raj Shah telling media “markets do fluctuate in the short term, I think we all know that. But the fundamentals of this economy are very strong”.