U.S. stocks suffered a heavy blow! The VIX index soared, but the market sell-off still appears rational
U.S. stocks experienced their worst single-day performance since April, with the S&P 500 index and the Nasdaq Composite index falling 2.71% and 3.56%, respectively. The VIX index surged 31.65% to 21.63, although it remains below historical highs, and the market sell-off is considered a rational response. Analysts point out that the current volatility has not triggered panic, and market performance remains relatively orderly
According to the Zhitong Finance APP, U.S. stocks experienced a "Black Friday," with the S&P 500 Index and the Nasdaq Composite Index closing down 2.71% and 3.56%, respectively, marking the largest single-day declines since April; the Dow Jones Industrial Average closed down 1.9%.
The worst single-day performance of U.S. stocks since April has led to a significant rise in volatility indicators, although their levels remain well below those seen during periods of sustained sell-offs. Data shows that the Chicago Board Options Exchange Volatility Index (VIX) surged 31.65% on Friday, closing at 21.63, breaking above 21 for the first time in over two months—there is an inverse relationship between the VIX index and the S&P 500 index about 80% of the time.
Since April, U.S. stock volatility has been suppressed, with the VIX index remaining below 17 multiple times (its long-term average is 20), and the S&P 500 index has risen for five consecutive months. According to Citigroup's equity and derivatives trading strategist Vishal Vivek, prior to Friday, the S&P 500 index had not experienced a single-day change exceeding 2% for 100 consecutive trading days.
Vishal Vivek stated, "It is not surprising that the VIX index rises significantly when a pullback occurs due to a headline that worries investors after a period of calm volatility."
Although the spike in the VIX index appears drastic compared to recent trends, it is still just a "minor ripple" compared to past periods of market turmoil. During the 2008 financial crisis, the VIX index surpassed 89, and it rose above 85 at the onset of the COVID-19 pandemic. After Trump announced the imposition of so-called reciprocal tariffs on trade partners on April 2, 2025, the index briefly touched 50.
Mandy Xu, head of derivatives market intelligence at CME Group, stated that the VIX index at the 21 level "is not a cause for concern." She pointed out, "It is normal for there to be some degree of price re-pricing driven by news, but the market is not in a state of panic."
Derivatives traders also believe that the sell-off process has been relatively orderly. Alex Kosoglyadov, managing director of global equity derivatives at Nomura Holdings, stated, "We have not seen clients rushing to buy protective positions." He noted that due to the relatively balanced long and short positions in the options market, market makers and traders are well-prepared to handle the rise in volatility, "the dealers' positions are very clean, and compared to the sell-off periods in April 2025 or August 2024, the current positions are more balanced."
Despite clear signs of a slowdown in the U.S. labor market, government shutdowns, and increasing concerns about the independence of the Federal Reserve, the S&P 500 index had not seen a single-day decline exceeding 1% since early August prior to Friday. Whenever U.S. stocks decline, dip buyers quickly enter the market, betting that AI trading will continue to offset macro-level concerns Vuk Vukovic, Chief Investment Officer and Co-founder of Oraclum Capital LLC, stated: "There is strong support in the market—every time there is a decline, it is quickly pushed up by buying." "This drop is slightly larger, but we are still at the levels of two weeks ago, so it is not very dramatic." He also mentioned: "This is more like an opportunity for volatility sellers to enter, rather than a time to hedge."
