Fear index hits highest level since pandemic
Traders’ so-called ‘fear gauge’ has reached its highest level since the onset of the pandemic, as investors brace for more market uncertainty in the wake of Trump’s swingeing tariffs.
The Vix index, which shows the US stock market’s expectation of volatility over the next month, reached as high as 60 in the early hours of Monday, the highest level since 20 March 2020 when governments across the world were announcing nationwide lockdowns.
The index is widely used as a proxy for the extent of market jitters and any reading above 30 tends to be associated with extreme volatility.
For much of 2024 it fluctuated between 14 and 21. But it has been rising gradually ever since Trump’s inauguration – jumping 85 per cent over two months – before that uncertainty was pushed into overdrive since Trump’s tariff announcement on Wednesday last week.
It touched 60 on Monday having been at just 22 on 2 April, the day before Trump’s speech.
The sharp jump is further evidence of markets’ panicked reception of the US President’s blanket import duties revealed last week in an announcement he dubbed ‘liberation day’.
Stock markets across the world have suffered aggressive routs, as investors aggressively pare back bets on their outlook for the global economy.
The FTSE 100 fell nearly five per cent on Friday after China announced a retaliatory 34 per cent tariffs on all its American imports. And the sell-off deepened on Monday, with London’s blue-chip index falling 5.9 per cent at market open, meaning losses since Trump’s speech outside the White House have topped 10 per cent.
In the US, the tech-heavy Nasdaq dropped over 11 per cent over Thursday and Friday, and the S&P 500 index of America’s 500 largest companies has also fallen over 10 per cent.
Analysts at UBS branded the contortions in the Vix “worrisome” and said they were evidence of markets beginning to expect a US recession in the next six months.
“The Vix is beginning to price one [a recession]. Average Vix during recessionary periods is 31, and the range of outcomes is much wider,” they said.