New developments in financial markets have sparked alarm as the Volatility Index, $VIX, spikes to levels not seen since the height of the COVID-19 stock market crash in 2020.
As of now, the $VIX has surged above the 20 mark for six consecutive days, signaling an extended period of market stress. This sharp uptick reflects a broader atmosphere of fear and uncertainty in the markets, with investors struggling to navigate the turbulence that has rocked major indices, including the S&P 500. In fact, the $VIX has increased by an eye-popping 45% since February 14, with daily swings in market capitalization for the S&P 500 often exceeding $500 billion.
$VIX Sentiment just spiked to 69, the highest since the 2020 COVID stock market crash! pic.twitter.com/KPO3T2pjr1
— Subu Trade (@SubuTrade) March 4, 2025
These spectacular changes are driving worries of a capricious market, one that is swayed by a number of things, from the sorts of high-stakes geopolitics that keeping the world umbilically connected to the Internet seem to have to various parts of Asia to the downright silly face-plant that our own ungovernable House of Representatives has performed to the sorts of repeat illnesses in supposedly recovered parts of the economy that we should have seen coming (and did, if you were paying attention) over the winter. Also, from a numbers perspective, there really isn’t any way to get around the sort of nasty, inflationary recession that seems to be shaping up. Meanwhile, Goldman Sachs’ Panic Index is up. Actual volatility in the market is low, so that’s good, right? Well, maybe. But risk to the downside is seriously underestimated.
Factors Driving the Market Volatility
What exactly is driving this surge in volatility? A combination of several factors seems to be contributing to the elevated uncertainty. This is leading to large swings in the markets and a doubling of investor anxiety. What is swinging the markets? Consider these:
1. Interest rates are rising and are expected to keep rising.
2. Corporate profits are under pressure, with some companies warning of poor results and making layoffs.
3. The Fed is not done raising rates, and the bad news for the markets is that, according to Chairman Powell, the current level of interest rates is not yet high enough to bring inflation down to acceptable levels.
1. Trump: Market Move-in’ Headline Machine: It is said that the stock market hates uncertainty, and these days Trump is just teeming with it. The politically charged atmosphere emanating from his administration adds a combustible layer of uncertainty to the mix. Sarcastic or ingenious comments from Trump on any number of issues invariably lead to rambling market behavior. Containing Trumpism as a source of market uncertainty inevitably means containing Trump.
2. DISRUPTING CUTS TO LABOR AND BOND MARKETS: Concerns are being raised that significant payroll cuts in the DOGE sector are infecting the labor market with instability and, by extension, are pumping more economic volatility into our lives. This instability is affecting the bond markets, too, and a lot of folks are now very worried about what this means for our long-term outlook.
3. Geopolitical Tensions in Ukraine: The conflict in Ukraine has been a key factor in the uptick of market volatility. When the market is already somewhat on edge, tensions rising between Russia and the West adds another layer of uncertainty. This is a geopolitical crisis that has the potential to deliver a number of nasty economic side effects, especially if it spills over into the energy markets. The situation in Ukraine is bad for market sentiment.
4. Polarized Market Positioning: The market is assuming a highly polarized state. Investors are holding either extremely bullish or extremely bearish positions. The result is a potentially volatile environment. In this environment, economic data or news that would normally cause only a minor price movement instead produces a large swing. What makes this situation good for swing traders (and maybe not so good for buy-and-hold investors) is the total lack of consensus about the economy’s direction.
Inflation in the U.S. is bouncing back:
Most experts think attempts by the Federal Reserve to cool inflation by raising interest rates have so far failed. Reports are coming in that inflation is rising again, with some now fearing that the Fed will have to resort to severely high interest rates to bring it under control. Not good news if you like the idea of a periodically growing instead of contracting economy.
Unprecedented Market Swings
The present market situation is marked by enormous swings in both equity and bond markets. For example, on Friday, the S&P 500 experienced a stunning bump in market cap of $900 billion, up in just 30 minutes, then promptly took back $500 billion in market cap in the hour after it opened for trading the next day. This kind of rapid, large fluctuation in market capitalization has become much more common lately and is a reflection of a much broader sense of instability that investors are dealing with on a daily basis.
Something is happening:
The Volatility Index, $VIX, just surged above 20 for its 6th STRAIGHT day.
Since February 14th, the Volatility Index is now up +45% and the S&P 500 has seen near-daily swings of $500B+.
Are you ready for the era of volatility?
(a thread) pic.twitter.com/kh3yp4JjVF
— The Kobeissi Letter (@KobeissiLetter) March 3, 2025
The bond market is seeing wild swings in volatility as shown by the Bond Market Volatility Index, or $MOVE, which is itself moving. After a 40% drop from November 5 to December 11, $MOVE has surged upward 25% over just the last week, which means it’s not just the stock market that is experiencing volatility. But these fluctuations also point to another troubling possibility: that traditional “safe haven” types of assets, like bonds, are now as unstable as the stock market — which doesn’t help the overall financial picture.
What Does the Future Hold?
The question on every investor’s mind is whether volatility will continue or the market will find some level of equilibrium. So many factors are now pumping instability into the market that it’s hard to see a clear path toward a more stable environment. Market-moving headlines, such as the recent announcement from the Federal Reserve about interest rates, seem to be coinciding these days with international political unrest and domestic economic challenges in the U.S.
At present, it looks like the volatility is here to stay, particularly because the Federal Reserve has some tough choices to make about rates and inflation. Should inflationary pressures keep on rising, the Fed could well have to take more aggressive action, which could contribute to market mayhem.
To sum up, the spike in volatility, caused by a mix of geopolitical tensions, economic worries, and political ambiguity, appears to be here for the time being. The market conditions shudder with uncertainty, enduring not just one but several recent episodes of infrequent trading and wide price gaps. The investor base seems to vacillate between amped-up anxiety and catatonic indifference.
Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.
Image Source: whyframeshot/123RF // Image Effects by Colorcinch