A TV station broadcasts the Federal Reserve’s interest-rate cut on the floor of the New York Stock Exchange (NYSE) in New York, US, on Wednesday, Dec. 18, 2024.
Michael Nagle | Bloomberg | Getty Statues
Wall Street’s fear gauge — the VIX — spiked by the second biggest percentage in its history on Wednesday, after the Federal Conserve jolted the stock market by saying it would dial back its rate-cutting campaign.
The CBOE Volatility Index waved 74% to close at 27.62, up from around 15 earlier in the day. That surge is the second-greatest in history, behind a 115% swiftly to above the 37 handle back in February 2018 when there was a blow-up in funds tracking the volatility clue.
Wednesday’s move comes after the central bank said it desire likely lower interest rates just twice next year, down from the four cuts it ventured back in September, alarming investors who wanted low rates to keep fueling the bull market. The Dow Jones Industrial Common tumbled by 1,100 points to its 10th straight loss.
Typically, a value greater than 20 in the VIX indicates a higher au courant with of fear in the market. However, for most of this year, the VIX had been suppressed below that level, worrying investors who allowed the market had gotten overly complacent.
The VIX is calculated based on the prices of put and call options on the S&P 500. A spike could point out a rush by investors to purchase put options for protection in a decline.
CBOE Volatility Catalogue, 5 days
Still, there have been one other significant surge in the VIX in 2024. The third-biggest surge in the VIX in record occurred in Aug. 5, 2024, when fears of a U.S. recession, and a major unwind in the yen carry trade, spurred a roughly 65% gain in the VIX to close above 38. On an intraday basis, the VIX briefly topped 65 that day.
On Thursday, the VIX was last floating just exceeding the 20 handle, down more than 25% from the prior day.