The Federal Reserve's announcement to slow down interest rate cuts triggered a surge in the VIX, the stock market's fear gauge, to its second-highest level in history. Investors reacted negatively to the news, as they had anticipated further rate reductions to sustain the bull market.
A television station broadcasts the Federal Reserve 's interest-rate cut on the floor of the New York Stock Exchange (NYSE) in New York, US, on Wednesday, Dec. 18, 2024. Wall Street's fear gauge — the VIX — spiked by the second biggest percentage in its history on Wednesday, after the Federal Reserve jolted the stock market by saying it would dial back its rate-cutting campaign. The VIX surged 74% to close at 27.62, up from around 15 earlier in the day.
That surge is the second-greatest in history, behind a 115% leap to above the 37 handle back in February 2018 when there was a blow-up in funds tracking the volatility index. Wednesday's move comes after the central bank said it will likely lower interest rates just twice next year, down from the four cuts it projected back in September, alarming investors who wanted low rates to keep fueling the bull market. The Dow Jones Industrial Average Typically, a value greater than 20 in the VIX indicates a higher level of fear in the market. However, for most of this year, the VIX had been suppressed below that level, worrying investors who believed the market had gotten overly complacent. The VIX is calculated based on the prices of put and call options on the S&P 500. A spike could indicate a rush by investors to purchase put options for protection in a decline. Still, there have been one other significant surge in the VIX in 2024. The third-biggest surge in the VIX in history occurred in, when fears of a U.S. recession, and a major unwind in the yen carry trade, spurred a roughly 65% increase in the VIX to close above 38. On an intraday basis, the VIX briefly topped 65 that day. On Thursday, the VIX was last floating just above the 20 handle, down more than 25% from the prior day
FINANCE VIX STOCK MARKET FEDERAL RESERVE INTEREST RATES INVESTOR FEAR
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