On Wednesday, December 18, 2024, a television station broadcast the Federal Reserve’s interest rate cut on the floor of the New York Stock Exchange (NYSE) in New York, USA.
Michael Nagle | Bloomberg | Getty Images
Wall Street’s fear gauge, the VIX, soared by the second-largest percentage in history on Wednesday after the Federal Reserve spooked stock markets by announcing it would scale back its interest rate cutting campaign.
of CBOE Volatility Index It soared 74% to close at $27.62 from about $15 a day earlier. The rally is the second-largest in history, behind a 115% jump over 37 handles dating back to February 2018, when funds tracking volatility indexes exploded.
Wednesday’s move came after the central bank said it was likely to cut interest rates only two times next year, down from the four it expected in September, continuing to fuel the bull market. This has caused a sense of caution among investors hoping for low interest rates. The Dow Jones Industrial Average fell 1,100 points, marking its 10th straight loss.
Typically, a VIX value greater than 20 indicates a high level of fear in the market. But for much of this year, the VIX index has remained below that level, worrying investors who think the market is getting too complacent.
The VIX is calculated based on the prices of S&P 500 put and call options. A spike could indicate that investors are looking to buy put options for protection during a decline.
CBOE Volatility Index, 5 days
Still, there was another significant rise in VIX in 2024. The third largest VIX increase in history occurred on August 5, 2024. At this time, there were concerns about a US economic recession and a significant unwinding of the yen carry trade. This caused the VIX to rise by about 65% and close above 38. On an intraday basis, the VIX briefly rose above 65 on the day.
On Thursday, the VIX last hovered just above the 20 handle, down more than 25% from the previous day.
