March 12, 2020 / 8:36 PM / 20 days ago

Wall Street's 'fear gauge' marks record surge after stock sell-off

NEW YORK (Reuters) - An avalanche of selling in stocks on fears over the coronavirus outbreak took Wall Street’s “fear gauge” to its highest level since the financial crisis on Thursday.

FILE PHOTO: A street sign, Wall Street, is seen outside New York Stock Exchange (NYSE) in New York City, New York, U.S., January 3, 2019. REUTERS/Shannon Stapleton/File Photo

The Cboe Volatility Index marked its biggest one-day surge on record as U.S. stocks confirmed a bear market in their steepest daily percentage drop since the crash of 1987.

The VIX ended Thursday’s session at 75.47, a more than 21-point jump over its already elevated closing level of 53.9 on Wednesday. The index is at its highest level since November 2008, during the throes of the financial crisis.

Its surge came as the S&P 500 .SPX, the Dow Jones Industrial Average .DJI and the Nasdaq .IXIC all fell more than 9% as concerns over the potential economic impact of the coronavirus epidemic mounted.

“One of the problems we’re having with the coronavirus is that nobody knows anything,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “There’s no real precedent and we’re getting information overload all over the place with conflicting stories.”

Earlier this year, the VIX was trading at 12, below its long-term average. Early reports of the coronavirus’s spread failed to lift the index far above those levels. It did not rise above 20 until late February.

The steep climb in the VIX reflects concerns over whether U.S. monetary and fiscal policy can effectively mitigate the impact of the virus’s outbreak, which has recently coalesced with a tumble in oil prices to threaten growth in the United States and around the world, investors said.

Both short-dated and longer-dated VIX futures have risen in price along with the index, in a reflection of heightened anxiety about the possible duration of the outbreak and its impact. The term structure for VIX futures has maintained an inverted shape, with shorter-dated contracts at higher levels than longer-dated ones, for more than two weeks.

Some investors view an inverted VIX term structure as a sign that selling may have peaked, but so far, the market rout has not let up.

“People are trying to figure out if this is a one- or two-quarter problem or a one- or two-year problem,” said Arnim Holzer, macro and correlation defense strategist for EAB Investment Group.

Reporting by April Joyner; Editing by Sandra Maler and Daniel Wallis

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