Wall Street’s Fear Gauge Reaches 3-Week High as Job Report Spurs Rate Cut Expectations
New York, New York – The Cboe Volatility Index, a measure of investor anxiety, rose to a three-week high on Friday, reaching 19.18, its highest level since December 20. The index, often referred to as the “Wall Street fear gauge,” reflects demand for protection against drops in the stock market.
The surge in the index comes as stock indexes sold off following an upbeat labor market report, which pushed back market expectations for further Federal Reserve interest rate cuts. The S&P 500 index fell 0.6% from its closing price the previous day.
“We’re seeing a significant increase in volatility and interest rate markets are doing interesting things, which is putting a lot of pressure on an equity market with very extended valuations,” said Michael Purves, CEO of Tallbacken Capital Advisors. “Volatility is picking up, and that’s what’s driving the market’s risk-off tone.”
The labor market report showed that employers added 256,000 jobs in December, far exceeding economists’ expectations, while the unemployment rate fell. The news led to a jump in longer-dated U.S. Treasury yields, which hit their highest levels since November 2023. The benchmark 10-year Treasury yield inched closer to 5%.
As a result, traders in the equity options market have responded by buying up defensive options contracts, with VIX call options drawing buyers. According to data from Trade Alert, more than 400,000 VIX call options changed hands by 12:30 p.m. on Friday, at 1.5 times the usual pace.
“The market has a decidedly risk-off tone,” said Mark Hackett, Chief Market Strategist at Nationwide. “The tone of the market and the behavior of investors have seen a notable shift.”