Extreme fear is back: VIX returns to highest level since 2011
By David Lin
From Kitco News
The CBOE Volatility Index (VIX), a popular gauge of market fear, has returned to nine-year highs after falling briefly after Monday’s stock market rebound.
Equities markets bounced back on Monday, following last week’s sell-off, but returned in the red on Tuesday.
Tuesday’s selloff came as the Federal Reserve announced an emergency 50-basis point cut to contain the economic damages of the coronavirus.
However, the Fed failed to convince the markets; the Dow subsequently dropping 950 points as of 2:30 pm EST, and the S&P 500 fell 2.5% on the trading day
The VIX index climbed 20% as of 2:30 pm following the selloff.
The CNN Fear & Greed Index, a measurement of market sentiment using seven technical indicators, is now at the highest level of fear: “Extreme Fear.”
Bond yields also fell, with the 10-year treasury yield dropping below 1% for the first time in history on Monday.
Fed Chair Jerome Powell said that Tuesday’s rate cut was a necessary response to the coronavirus, which would see similar emergency responses from all branches of the government and the private sector.
“The virus outbreak is something that requires a multi-faceted response, and that response will come, in the first instance, from health care professionals and health policy experts. It will also come from fiscal authorities should they determine that a response is appropriate,” Powell said in a press conference Tuesday.
The Fed also has a role to play in providing a policy response, he said.
“Monetary policy can be an effective tool to support economic activity. We do recognize that a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain. We get that. We don’t think we have all the answers. But we do believe that our actions will provide a meaningful boost. More specifically, it will support accommodative financial conditions and avoid a tightening of financial conditions,” he said.
Some experts believe that equities investors were not taken by surprise by the Fed’s actions.
“The Fed lived up to the expectations of the market because partly it had to,” said Jeffrey Christian, managing editor of the CPM Group on the sidelines of the PDAC in Toronto.