VIX: What it is, its current price, and market implications
The VIX: Is Fear Really Spiking, or Just a Flash in the Pan?
The Cboe Volatility Index, or VIX, is making headlines again. We're seeing reports of the VIX spiking, reaching levels not seen since mid-October. The question is, is this a genuine surge in market fear, or is it just a blip driven by short-term factors? Let's dig into the data and see what's really going on.
Decoding the Recent VIX Jump
The initial reaction to headlines about a "VIX spike" is often panic. But context is crucial. Yes, the VIX jumped 19% intraday. However, it’s vital to note from what level it jumped. The VIX started from a relatively low base. We need to look at the absolute level, not just the percentage change. A 19% jump from 12 is less concerning than a 19% jump from 25.
The article mentions the S&P 500 ($SPX) (SPY) is off by -0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.21%, and the Nasdaq 100 Index ($IUXX) (QQQ) is lower by -0.49%. December E-mini S&P futures (ESZ25) are down -0.43%, and December E-mini Nasdaq futures (NQZ25) are off -0.69%. These are not numbers that indicate widespread panic selling. In fact, the initial market reaction was positive, driven by Nvidia's (NVDA) strong earnings. It was only later in the day that these gains eroded.
The market's initial positive reaction to NVDA's earnings is interesting. NVDA reported Q3 revenue of $57.01 billion, above the consensus of $55.19 billion, and forecasting Q4 revenue of $65 billion plus or minus 2%, stronger than the consensus of $62 billion. This suggests that the underlying market sentiment remains bullish, at least regarding AI-related stocks. The subsequent decline, along with the VIX spike, could be attributed to profit-taking or sector rotation, rather than a fundamental shift in market outlook. As Stocks Reverse Course as Nvidia Earnings Rally Fades, VIX Spikes reports, the Nvidia earnings rally faded as the VIX spiked.
Labor Market Data: A Mixed Bag
The labor market data presents a mixed picture. US weekly initial unemployment claims fell by -8,000 to 220,000, showing a stronger labor market than expectations of 227,000. However, weekly continuing claims rose to 1.974 million, the most in four years, and a sign that those currently unemployed are finding it challenging to secure new employment.
The September nonfarm payrolls rose by +119,000, beating expectations of +51,000. But the September unemployment rate unexpectedly rose by +0.1 to a nearly four-year high of 4.4%. This discrepancy—strong payrolls but rising unemployment—is unusual (and this is the part of the report I find genuinely puzzling). How can payrolls increase substantially while the unemployment rate also rises? One possible explanation is that more people are entering the labor force, but they are not immediately finding jobs. Or, to be more exact, the rate rose 0.1 percentage points, which is not a massive jump in the grand scheme of things.
Cleveland Fed President Beth Hammack's hawkish comments also likely contributed to the market's unease. She stated that "Lowering interest rates to support the labor market risks prolonging this period of elevated inflation, and it could also encourage risk-taking in financial markets."
The article also mentions a heavy week of delayed economic reports. The Bureau of Labor Statistics said that it would incorporate October payroll figures into the November report set to be published on December 16. This delay in data release adds uncertainty to the market, which could also contribute to volatility.
Is It Time to Hit the Panic Button?
The VIX spike, while noteworthy, needs to be viewed in context. The underlying market sentiment appears to be reasonably stable, supported by solid earnings from key companies like Nvidia and Walmart (WMT). The labor market data is mixed, but not definitively negative. The rise in the VIX may be more of a reaction to short-term factors, such as profit-taking, sector rotation, and uncertainty surrounding delayed economic reports, than a sign of a major market downturn.
However, it's crucial to remember that the VIX is a forward-looking indicator. It reflects market expectations of volatility over the next 30 days. Therefore, even if current conditions appear stable, the VIX spike suggests that investors anticipate increased uncertainty in the near future. Are they right? We'll have to wait and see.
Don't Read Too Much Into One Day
The VIX is a useful tool, but it's not a crystal ball. One day's jump doesn't necessarily signal a long-term trend. We need to watch the data over the coming days and weeks to see if this "spike" turns into a sustained climb, or if it fades away as quickly as it appeared.