The index, which uses a handful of inputs including the level of the Cboe Volatility Index VIX or Vix, better known as Wall Street’s “fear gauge”, reflected a level of “extreme fear” on Wednesday for the first time since March 15, when markets were still reeling from the collapse of Silicon Valley Bank.
The Vix traded as high as 18.70 on Wednesday, its highest level since May 25, according to FactSet data.
In addition to the Vix, the gauge incorporates other data points, including the number of stocks listed on the New York Stock Exchange trading at 52-week highs compared with the number trading at 52-week lows.
Options market activity is also included in the form of the five-day put/call ratio, which currently stands at 1.07, also the highest level since March.
This indicates that demand for puts, which are insurance against further stock market losses, has outstripped demand for calls, which are bets that a stock index or individual stock will rise. Options give the holder the right, but not the obligation, to buy or sell at an agreed price before a specified expiry date.
Interestingly, the only index input that didn’t predict “fear” or “extreme fear” was a measure of junk bond spreads over investment grade spreads, which haven’t moved much despite the rise in long-term Treasury yields.
US stocks swung between gains and losses throughout the day on Wednesday as the S&P 500 SPX struggled to avoid its fifth red day in eight sessions. The S&P 500 was up 0.2% at 4,882 in late trading on Wednesday, while the Nasdaq Composite COMP was up 0.5% and the Dow Jones Industrial Average DJIA remained in the red, down 16 points or 0.1% at 33,599.
US equities have been sliding since the Federal Reserve released projections last week showing it plans to keep its benchmark interest rate target above 5% until 2024, longer than investors had expected. Rising Treasury yields and a strengthening dollar have been blamed by analysts for much of the stock market’s woes.
