Saqib Iqbal Ahmed
NEW YORK (Reuters) – Wall Street’s most-watched gauge of investor anxiety rose to a three-week high on Friday as shares fell after an upbeat jobs report dampened market expectations for further Federal Reserve interest rate cuts.
The Cboe Volatility Index – an options-based gauge that reflects demand for protection against stock market declines – was last up 1.1 points at 19.18. The index reached 20.31 earlier in the session, which is the highest result since December 20.
A reading of 20 or higher on the VIX is associated with strong demand for option protection. Friday’s rise in the index — often referred to as Wall Street’s “fear gauge” — indicated investors are waking up to the risks lurking in stocks even as the S&P 500 remains within 5% of a record high hit in early December.
“Volatility is rising and interest rate markets are doing interesting things,” said Michael Purves, managing director of Tallbacken Capital Advisors.
“That’s a lot of pressure on a stock market that has very inflated valuations,” he said.
Longer-dated U.S. Treasury yields jumped to their highest levels since November 2023 on Friday after data showed employers added 256,000 jobs in December, far beating economists’ expectations, while the unemployment rate fell.
Concerns that the incoming Donald Trump administration’s policies will increase an already bloated fiscal deficit and revive inflation have helped fuel a rally in Treasury yields in recent weeks with the benchmark US 10-year Treasury yield inching closer to 5%.
Traders in the stock options market responded by pouring into defensive options contracts, with VIX call options – contracts that offer protection against a market pullback – attracting buyers.
On Friday, some 400,000 VIX call options changed hands by 12:30 p.m. (17:30 GMT), 1.5 times faster than the usual pace, according to Trade Alert data.
“The market has a distinctly risk-on tone,” Mark Hackett, chief market strategist at Nationwide, said in a note.
“The tone of the market and the behavior of investors has seen a significant change,” he said.
(Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski)
