By Claire Moraa
- The stock market has hit its highest fear index since the COVID-19 pandemic in 2020
- The VIX spiked over 142% at the start of the week, exceeding 65 and nearly doubling its previous 52-week peak
The slowing U.S. economy has now affected a key market sector if the recent stock market changes are anything to go by. The CBOE Volatility Index (VIX), often referred to as the market’s fear gauge, peaked to its highest level since pandemic times. Japan’s Nikkei held the number one spot of the worst tumble with 12% which hasn’t been seen in the last three and a half decades while U.S’s Nasdaq followed closely with a 4.8% drop.
Why This Matters: It’s normal to be grappled with fear when there’s such a historic surge. For reference, the VIX has only recorded such levels in 2008 and 2020 during the pandemic. While the U.S. economic data and the specter of a potential recession have undoubtedly contributed to the market’s woes, it’s not enough to send investors packing. Afterall, inflation hits everywhere. However, experts have found another underdog-the job market. The unemployment rate rose to 4.3%, its highest level in three years This shortfall suggests a slowing labor market, which can lead to reduced consumer spending and lower economic growth expectations. Further, it’s an election year so you can expect anything an everything to happen because there’s so much uncertainty But is this something to be worried about?
Given the heightened level of market volatility and fear as indicated by the ‘fear index’, investors may continue to closely monitor the stock market for signs of stability or further turbulence. The central bank can also step in and choose to slash interest rates and mitigate further economic damage. And while it may offer temporary stability, it can have adverse ripple effects such as negative credibility on the monetary policies, exacerbated debt accumulation and encourage excessive risk-taking with asset bubbles.
What’s Next: With 62% of Americans having invested in stocks, there’s a huge potential for losses but in the same breath, room for adjustment. Although it’s too early to determine what the wave will be like, the current climate underscores the importance of diversification, risk management, and a long-term perspective. While short-term fluctuations can be unsettling, history has shown that markets have an uncanny ability to recover from even the most severe dislocations, provided that the underlying economic fundamentals remain sound.
CBX Vibe: “Row” Bensoul, Mordecai Dex, Okello Max
