Wall Street’s fear gauge closes at highest level ever, surpassing even financial crisis peak(Mar 16 2020)

created At: 2/7/2025

Neutral

This analysis was written from a neutral perspective. We advise you to always make careful and well-informed investment decisions.

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Mirae Asset TIGER NASDAQ100 ETF

Fact

VIX closed at record high 82.69, surpassing 2008 crisis peak of 80.74 Dow dropped nearly 3,000 points, worst day since 1987 S&P 500 fell 12% to lowest level since December 2018 Fed cut rates to 0-0.25% and launched $700B QE program Trump warned outbreak could last until August VIX more than doubled in March alone Market fell despite emergency Fed intervention

Opinion

The market reaction shows signs of unprecedented panic and dysfunction. The VIX reaching levels beyond the 2008 financial crisis, despite massive Fed intervention, suggests a fundamental breakdown in market confidence. Most concerning is how monetary policy appears to have lost its effectiveness as a market stabilizer, with stocks plunging even after emergency rate cuts and QE. The market's rejection of traditional crisis-fighting tools indicates potential systemic risks that monetary policy alone cannot address.

Core Sell Point

The failure of unprecedented Fed intervention to calm markets, combined with VIX levels exceeding the 2008 crisis, suggests a potential market crisis that could be more severe than the financial crisis due to monetary policy's diminishing effectiveness.

A measure of fear in stocks just topped the levels during the financial crisis more than a decade ago.

The Cboe Volatility Index, known as the VIX, surged nearly 25 points, or almost 43%, to close at a record high of 82.69, surpassing the peak level of 80.74 on Nov. 21 2008. The VIX, which tracks the 30-day implied volatility of the S&P 500, more than doubled in March alone. The index looks at prices of options on the S&P 500 to track the level of fear on Wall Street.

“It’s now apparent that we’re in the depths of the Covid-19 financial crisis of 2020, with much left to be written,” Jon Hill, BMO’s rates strategist, said in a note on Monday.

Stocks suffered a brutal sell-off Monday with the Dow Jones Industrial Average tanking nearly 3,000 points, posting its worst day since the “Black Monday” market crash in 1987. The S&P 500 dropped 12%, — hitting its lowest level since December 2018.

Investors have been dumping stocks amid intensifying fears that the fast-spreading coronavirus would disrupt global supply chains and damage the world economy significantly. The market took a turn for the worse right before Monday’s close after President Donald Trump said the worst of the outbreak could last until August. He also said the U.S. “may be” heading into a recession.

Part of the reason for this level of volatility is because there’s so much uncertainty around the length of the outbreak and its economic impact, according to Bill Miller, founder of Miller Value Partners.

“It reflects the uncertainty and potential impact of that range of outcomes,” Miller said in a note Monday. “When the market thinks the authorities don’t get it ... the market reflects that immediately. When it believes proactive measures are being taken — Trump’s remarks [Friday] — that is quickly evident in the market’s reaction.”

Trump on Friday declared a national emergency and detailed plans to battle the outbreak, including ramped-up testing.

Monday’s bloodbath came even after the Federal Reserve’s emergency move to ease lending aggressively. The central bank on Sunday shockingly cut rates by 125 basis points to a target range of 0% to 0.25% and launched a massive $700 billion quantitative easing program to offset the negative impact from the coronavirus.

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