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Wild Days Return to Stock Market as VIX Surges Like Never Before

After hitting 19 separate records this year though September, the S&P 500 came crashing down.

Wild Days Return to Stock Market as VIX Surges Like Never Before
Traders work in the Cboe Volatility Index (VIX) pit on the floor of the Cboe Global Markets Inc. building in Chicago, Illinois, U.S. (Photographer: Daniel Acker/Bloomberg)

(Bloomberg) -- The days of low volatility are far gone, and recent tumult in the stock market has the VIX set for its biggest annual surge on record.

Not only that -- the S&P 500 Index has become more volatile than benchmark stock gauges of Asia, Europe and emerging markets:

  • The Cboe Volatility Index has surged 157 percent this year, hitting 28.4 on Thursday, its highest level since the February equity rout.
  • Intraday swings in the S&P 500 have averaged 1.2 percent each day this year -- and 2.3 percent this month alone, the most since October 2011. That compares with mean annual daily moves of 0.9 percent for the MSCI Asia Pacific Index and the Stoxx Europe 600 Index, and 1.1 percent for the MSCI Emerging Markets Index. Those gauges also had smaller fluctuations in December.
Wild Days Return to Stock Market as VIX Surges Like Never Before

After hitting 19 separate records this year though September, the S&P 500 came crashing down, closing Thursday at its lowest level since September 2017. Fears that growth in corporate earnings and the global economy are slowing have beset investors globally. They come as the U.S.-China trade war rages on, the Federal Reserve keeps on lifting rates and the government faces a potential shutdown. American equities have lost more than $5.4 trillion of value since September.

“Pain, that’s what it’s about,” said Kay Van-Petersen, a global macro strategist at Saxo Capital in Singapore. “Emerging markets and especially China and Hong Kong went through a lot more pain and volatility earlier in the year. The U.S. is now playing catch up on this.”

The S&P 500 has plunged 11 percent this month, becoming one of the world’s biggest losers. And yet, its 7.7 percent decline for the year is smaller than the losses of more than 13 percent for equity gauges of Asia, Europe and the emerging markets through Thursday.

Hedge funds and large speculators, which at one point last year held record bets that volatility would slide, are now net-long VIX futures by the most since April, when their long positions hit a record. At the same time, following this week’s expiration, the number of options wagering on bigger stock swings has reached its highest level since February relative to contracts profiting with the return of calm.

Wild Days Return to Stock Market as VIX Surges Like Never Before

While the gauge of stock swings did jump this year, its mean of 16.3 for 2018 is only the highest since 2015 and comes after a year of record-low volatility. For those looking to hedge against turbulence, a measure tracking the cost of VIX derivatives is now at its lowest since February 2016 relative to the VIX itself.

One consequence of this resurgence of volatility: it’s brought more stock trading. Volume on U.S. exchanges has climbed to an average 7.2 billion shares daily this year, up 11 percent from 2017, when the VIX averaged 11.1.

“You have shutdown dramas in the U.S., Trump’s swamp being cleared with Gen Mattis the latest, suspension -- not conclusion -- of trade wars,” said Justin Tang, the head of Asian research at United First Partners in Singapore. “A lot of things to be concerned about.”

To contact the reporters on this story: Cecile Vannucci in Hong Kong at cvannucci1@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Tom Redmond

©2018 Bloomberg L.P.