Volatility soars in the markets: the VIX index exceeds the panic threshold
Volatility has skyrocketed in the global markets due to the uncontrolled increase in Covid-19 infections, the delay in the vaccination campaign, and a new warning from Federal Reserve Chairman Jerome Powell that economic recovery is delayed. In this context, Wall Street, which has been trading at record highs, closed its worst trading day since October yesterday: the Nasdaq ended with a 2.61% drop, the S&P 500 with a 2.57% decline, and the Dow Jones was down 2.05%.
These falls have spread to the Asian indices and are also turning European stocks red. The vaccination campaign in the European Union is not progressing as planned due to delays in the delivery of promised doses by the pharmaceutical companies Astrazeneca and Pfizer, which only increases market anxiety. By the middle of the trading day, the main European indices fell by around 1%.
As a clear sign of the increase in market anxiety, the upward trend of the VIX index is known as the volatility or fear index. Over the last week, VIX has shot up by more than 50%, surpassing the 30-point level, the threshold from which it is considered to represent panic. Yesterday, it increased by more than 60% to 37.21 points, although today it moderated back around 33 points.
Source: Admiral Markets MetaTrader 5. Volatility Index Futures CFD Chart. Data range: from January 24, 2020 to January 28, 2021. Prepared on January 28, 2021 at 12:30 CET. Keep in mind that past returns do not guarantee future returns.
In this graph, we can clearly see how the VIX index has evolved throughout the pandemic crisis. The first peak reflects the first wave of contagion in March 2020, when it reached 80 points, levels not seen since the financial crisis of 2008. In the following months, new peaks, but much more moderate, can be seen in the environment of resistance of the 36 points. These occur in June, September and October, coinciding with the increase in infections or with some setbacks in research on vaccines.
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