'Fear gauge' hits three-month high as US stocks sell off
By Saqib Iqbal Ahmed
NEW YORK, July 24 (Reuters) -A hefty U.S. stocks sell-off sent Wall Street's most watched gauge of market volatility to a three-month high and boosted options trading volume on Wednesday, though strategists saw little evidence of panic.
The S&P 500 .SPX slipped 2.3%, on pace for its worst daily loss since late 2022, after Tesla TSLA.O and Alphabet GOOGL.O reported lackluster earnings, prompting investors to question if the 2024 rally fueled byBig Tech and artificial intelligence is sustainable.
As stocks tumbled, the Cboe Volatility Index .VIX - known as Wall Street's fear gauge because it measures demand for protection against stock swings - shot to 18.46, the highest since late April. Options on the VIX changed hands at nearly twice the usual pace on Tuesday, Trade Alert data showed.
The sell-off spotlighted the broader market's vulnerability to any weakness in Big Tech, which has boostedindexes even as it sparked concerns over stretched valuations and recalledthe dotcom boom more than two decades ago.
Still, the decline so farhas been more an orderly retreat than a rout, options market participants said.
"We're not seeing a whole lot of fear in the marketplace, meaning that people aren't going out and trying to buy protection aggressively," said Matthew Tym, head of equity derivatives trading at Cantor Fitzgerald. "It's kind of very orderly and kind of passive, which indicates to me that nobody's in a bad spot right here yet."
Despite the recent wobble, months of strong equity market returns have likely left investors in a strong position to stomach a modest uptick in volatility, Tym said.
The S&P 500 is up 14% year-to-date, while the tech-heavy Nasdaq 100 - which fell 3.5% on Wednesday - has gained 13%. The indexes are off 4% and 8% from their all-time highs, respectively.
Nvidia NVDA.O, whose blistering rally has fueleda big part of the broader market's gains, fell 6% on Wednesday but is still up about 130% for the year.
The VIX index at 18 remains below the peaks touched during recent weak marketepisodes. In October the index climbed as high as 23 during a sharp sell-off.
Big tech earnings is not the only thing on investors' minds. Political uncertainty, an expected shift in Federal Reserve policy and the seasonally weak stretch for stocks in September and Octoberhave raised the allure of portfolio protection for some investors.
Others, however, were taking advantage of the greater market volatility to bet that calm will returnsoon.
"While the crowd is hedging and hoping to time the in and out with that hedge, I'm shorting UVXY/VXX outright, as it climbs, and will simply await the inevitable plunge in volatility," said Seth Golden, president of investment research firm Finom Group. He wasreferring to ProShares Ultra VIX Short-Term Futures ETF UVXY.Z and the Barclays iPath Series B S&P 500 VIX Short-Term Futures ETN VXX.P, ETFs that rise in value when volatility rises.
On Wednesday, UVXY was up 20%and the VXX rose 14%.
Not quite panic yet https://tmsnrt.rs/4cRTrcc
Reporting by Saqib Iqbal Ahmed; Editing by Richard Chang
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