Markets remain on edge over next move amid an uneasy calm atmosphere

Investors have their pick of factors to blame for the stomach-churning ride their portfolios took in recent days, from unnerving U.S. jobs data to bursting tech bubbles to the implosion of complex currency bets. But as calm returns, markets remain on edge over what comes next.

 

The most-watched gauge of investor anxiety is the CBOE Volatility Index, or VIX, and it flashed red in spectacular fashion this week as stock prices plunged.

 

Known as the “fear gauge,” the VIX tracks market expectations for volatility in S&P 500 stock index. On Monday, as trillions of dollars of global stock market value were wiped out in a matter of hours, the VIX posted its largest-ever intraday jump, spiking to the highest level since the COVID-19 shock in early 2020 and the global financial crisis in 2008.

 

The index then set another record for how much it fell before the close of markets that day.

 

The whipsaw in volatility was all the more jarring because it followed more than a year of abiding calm in markets. Yet headwinds were building for investors ahead of this week’s rout.

 

The U.S. job market is slowing, even if there’s limited evidence a recession is imminent. The tech-heavy NASDAQ Composite Index had shed 10 per cent of its value since mid-July. And the Japanese Yen carry trade – in which large investors borrowed money in Japan at low-interest rates to buy riskier assets elsewhere, and which was blamed for much of Monday’s upheaval – was already unwinding after the country’s central bank twice raised rates this year.

 

Against that backdrop, the VIX index ended Thursday at around 25, roughly where it started the week but double the level it was at a month ago. Stock markets may have clawed back most of their losses from Monday, but for now, uncertainty abounds.

 

 

 

 

This article was first reported by The Globe and Mail