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The CBOE Volatility Index — also known as the VIX — hit its highest level since March 2020 on Monday morning, as fears about a slowing U.S. economy sent stocks around the world into a rout.
The VIX climbed more than 142% to kick off the week, trading above 65. That’s almost double the previous 52-week high, and its highest intraday level since March 2020, when global stock markets crashed on fears of the COVID-19 pandemic.
Known as the “fear index” or “fear gauge,” the VIX reflects investors’ anxieties about market downturns. It’s calculated using the weighted prices of put and call options in the S&P 500 index for the next 30 days.
Global stock markets were in the grips of a quickly intensifying rout on Monday. It started with Japan’s Nikkei 225 plunging 12% — its worst day since the 1987 Black Monday crash. In the U.S., Dow Jones Industrial Average futures fell more than 1,000 points, or 2.7%; S&P 500 futures dipped 3.6%; and Nasdaq-100 futures dropped 4.8%.
The culprit? Friday’s weaker-than-expected U.S. jobs report, that saw employers add just 114,000 jobs in July. This fell far short of the 175,000 gain economists had projected, according to estimates compiled by FactSet. At the same time, unemployment ticked up to 4.3%, it’s highest level in three years.
That data pointed to a slowing U.S. economy, and renewed concerns about a potential hard landing as opposed to a soft landing, when the central bank brings down inflation without tipping the economy into a recession.
It also raised concerns among investors about whether the Federal Reserve has waited too long to cut interest rates, which have sat at a 23-year high of between 5.25% and 5.5% for the past year. A September rate cut seems all but certain, given that inflation has continued to move towards the Fed’s 2% target in recent readings.
However, Monday’s rout could force central banks around the world into earlier rate cuts, with some traders at one point pricing in a 60% chance that the Fed carries out an emergency rate cut before September.