By Samir Al Khoury,
he VIX, known as the fear and volatility index, which reflects investors’ expectations regarding price movements in the stock market, surged yesterday to 65.73 points. This is its highest level since 30 March 2020, indicating significant investor turmoil and discomfort in the US stock markets. The index later declined, closing at 38.56 points. The VIX has risen by approximately 519% since hitting a low of 10.62 points on 19 July this year, reaching the peak of 65.73 points yesterday.
This remarkable rise is attributed to several factors, primarily the slowdown in the US labour market. Recent indicators such as the non-farm payrolls report, the unemployment rate, and average hourly wages have all recorded readings worse than analysts’ expectations, raising concerns about a potential US economic recession. Key data points include:
- The non-farm payrolls report showed an increase of 114,000 new jobs, falling short of expectations (176,000) and the previous reading (179,000).
- The unemployment rate rose to 4.3%, exceeding both expectations and the previous reading (4.1%).
- Average hourly earnings fell on an annual basis to 3.6%, below expectations (3.7%) and the previous reading (3.8%).
Despite these poor economic indicators, the Institute for Supply Management (ISM) non-manufacturing PMI recorded growth of 51.4 points yesterday, surpassing the previous reading of 48.8. This raises the question: Will the US economy experience a soft or hard landing?
Markets are now betting on US interest rate cuts, with a 76% chance that the first cut of 50 basis points will occur on 18 September 2024.
From a technical perspective, according to Fibonacci analysis, the VIX is likely to rise to levels of 44.68 (61.80%) and 53.94 (78.60%).
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.
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