:max_bytes(150000):strip_icc()/GettyImages-2164062580-fefad09ba47740058ed94b6d44573692.jpg "Wall Street Is Antsier Than It’s Been All Year")
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Key Takeaways
- The Cboe Volatility Index, a measure of expected market volatility sometimes referred to as the “fear index,” jumped to a year-to-date high Friday morning after a disappointing July jobs report.
- Volatility has been on the uptick since mid-July when investors began dumping tech mega-caps to bet on small-caps in anticipation of lower interest rates.
- While volatility could remain elevated, market breadth has held up in recent weeks, potentially offering some relief to diversified portfolios.
The Cboe Volatility Index, or VIX, jumped to its highest level all year on Friday morning after a troubling jobs report exacerbated Wall Street’s fears about a weakening economy.
The U.S. added just 114,000 jobs in July, according to Labor Department data released on Friday. The report also showed the unemployment rate jumped to 4.3% from 4.1% in June, triggering the Sahm Rule recession indicator.
The VIX, a measure of expected market volatility, subsequently leaped nearly 10 points to as high as 28.25, its highest level since October 2022.
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Concerns Economy Won’t Have a Soft Landing
Volatility was already on the uptick before Friday’s ominous jobs report. The VIX, sometimes called the “fear index,” hummed along below 15, a relatively low level indicating stability, from early May to mid-July. Simultaneously, the S&P 500 steadily crept higher as investors became increasingly confident the U.S. economy was coming in for a soft landing.
But the calm in the markets was disrupted in mid-July when a soft inflation report sparked a sell-off in big tech stocks and rotation into small-caps. Volatility began to rise amid the rotation and has accelerated in recent weeks after some disappointing tech earnings reports and, this week, signs of a weakening labor market.
Market Breadth Remains Intact
Analysts expect volatility to remain elevated as economic and geopolitical uncertainty weigh on markets.
But heightened volatility doesn’t necessarily mean stocks will fall.
“Fortunately, breadth remains solid with ~75.0% of the S&P 500 trading above its 200-DMA, providing longer-term investors with some solace,” wrote John Lynch, Chief Investment Officer at Comerica Wealth Management, in a note Friday.