:max_bytes(150000):strip_icc()/GettyImages-2240466623-441898b84c914a28bab69e5114ddd092.jpg "The Stock Market’s Fear Index is at Its Highest Level in Months—Here’s Why")
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Key Takeaways
- The major U.S. stock indexes are back to making dramatic moves, with investors dealing with another round of trade-related uncertainty.
- One widely used volatility measure, the VIX, has jumped recently to its highest levels in months. But it’s still well off April highs.
Investors are getting a taste of volatility.
We’re not back where we were in April—but the increase is notable, with the major U.S. stock indexes moving dramatically Friday and Monday in response to fresh uncertainty regarding the trade relationship with China. (That’s continued today, with the S&P 500 falling as much as 1.5% in early trading before rebounding. Read Investopedia’s full daily markets coverage here.)
A widely used measure of market volatility is the VIX, sometimes called the market’s “fear index,” which uses options data to get at traders’ estimation of expected volatility in the benchmark S&P 500 over the coming 30 days. Broadly speaking, a reading under 20 is generally taken as a sense of calm; the higher the number, the more fear there is out there.
Why This Matters to Investors
A new round of trade-related uncertainty has stocks making dramatic moves after a long upward run. By one widely used measure, volatility is at its highest levels in months—but stocks remain in the neighborhood of record highs, and we’re nowhere near the levels seen in April.
The VIX rose to near 23 this morning, its highest level since late May. That’s notably above levels seen in recent weeks, but well off those above 50 seen in early April, at the height of trade-related uncertainty, which were themselves the highest in more than a decade.
“There continues to be a heightened degree of uncertainty stemming from complex geopolitical conditions, tariffs and trade uncertainty, elevated asset prices and the risk of sticky inflation,” JPMorgan Chase CEO Jamie Dimon said in a statement Tuesday.
Stocks aren’t that far off recent record highs, showing that investors haven’t jumped ship even as debates about whether we’re in a bubble—and, if so, what to do about it and when—continue daily. Still, there are other measures of concern out there. CNN’s Fear & Greed Index, which works together several different data points, is on the brink of shifting into “Extreme Fear” territory; it suggested greed earlier this month.
And some asset prices are sending similarly downbeat signals about investor mood. The price of gold, typically purchased as a hedge against a range of sources of uncertainty, is around record highs—sending some Americans to jewelry shops to cash in. In the S&P 500 today, more aggressive sectors like tech and discretionary stocks were falling while consumer staples were rising.
“Friday’s escalating trade tensions between the U.S. and China quickly renewed demand for downside risk protection,” LPL Financial Chief Technical Strategist Adam Turnquist wrote in email’s comments Tuesday.
