Stock volatility, dormant for more than year, is back with a vengeance.
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The Chicago Board Options Exchange’s volatility index, known as the VIX, surged more than 80% on Monday to 31.57, the highest level since September 2011. Based on a range of S&P 500 Index options, the VIX is used as a proxy for market risk and is sometimes known as a “fear gauge” for investors.
The Standard & Poor’s 500 Index has decreased 5% in the past two trading days on speculation that U.S. economic strength will encourage the Federal Reserve to boost interest rates at a faster-than-expected pace. The Dow Jones Industrial Average, down more than 800 points Monday, has lost 1,522 points over two sessions.
On Friday, the Labor Department reported that employers added more jobs in January than economists had forecast, helping to trigger the two-day equity rout. Wage growth accelerated in January to the fastest yearly pace since the last recession.
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“Inflation on a 12‑month basis is expected to move up this year and to stabilize around the committee’s 2 percent objective over the medium term,” the Federal Reserve wrote in its Jan. 31 policy statement.
For the first weeks of 2018, the VIX was trading at a tight range near all-time lows, which some analysts interpreted as a sign of market complacency.
