Saturday, 24 February, 2018

United States stock volatility spikes; short volatility ETPs implode

The VIX The VIX"fear index usually signals bad things happening in the stock market. Yahoo Finance
Nellie Chapman | 07 February, 2018, 11:48

Stocks on Wall Street have swung wildly between positive and negative through the session. The Dow closed 567.02 points higher at 24,912.77 and rose as much as 600.48 points.

U.S. markets have been extremely volatile in the first hour-and-a-half of trading.

The notional value of contracts on such products traded on Friday was six times the daily average for the past year, said the head of European equity market trading strategy at a bank in London.

All this comes after a year in which global stock markets gained 22%. The equally volatile S&P 500 and Nasdaq Composite ended up gaining 1.74% and 2.13%, respectively, after the CBOE Volatility Index (VIX) soared to 50.3, its biggest intraday level since August 2015. It was last down 21 per cent at 29.43.

The price swings are a change of pace for a stock market that's sat mostly unperturbed for months.

USA stocks saw the biggest one day fall in six years on Monday as investors rushed to take profits, after bond yields rose sharply last week, following an equities rally to record levels in January.

Economically sensitive S&P materials, technology and consumer discretionary indexes advanced, while the rest sagged, led by a decline in rate-sensitive utilities, down 1.6 per cent.

Both the S&P 500 and the Dow sank more than 4 percent on Monday, their biggest falls since August 2011, as concerns over rising U.S. interest rates and government bond yields hit record-high valuations of stocks.

The index was up 0.3% Tuesday afternoon.

The stock market is finally getting a long-awaited bout of volatility. An index of Latin American stocks was up 1.1 per cent. Japan's Nikken was off 4.73%, while China's Hang Seng Index fell more than 5%.

U.S. two-year, 10-year and 30-year yields ended the day 7bp, 8bp and 5bp higher at 2.11%, 2.80% and 3.07%, respectively. That raised the alarm about higher inflation and, with it, potentially higher interest rates.

United States crude fell 1.2 per cent to settle at $US63.39 a barrel while Brent dropped 1.1 per cent to settle at $US66.86.