The CBOE Volatility Index (VIX), or fear gauge, soared ahead 39.9% on in Friday trading, making it the 11th greatest move in the index in more than 25 years.
While the VIX’s move didn’t match the 64.2% spurt on Feb. 27, 2007 caused by a confluence of events including a big decline in Chinese stocks, an apparent attempt on VP Dick Cheney’s life during a visit to Afghanistan and weakness in some economic indicators, or the 51.7% jump on Nov. 15, 1991 on a day when the Dow Jones Industrial Average took its biggest tumble in two years, it certainly was a big change from the rather somnolent markets we’ve been experiencing over the past several weeks.
Is this the beginning of the end of the great bull market that’s been powering stocks since early 2009?
Hardly! Take a look at this chart for a comparison:
Wall Street simply got spooked by worries that the end of the easy-money era is over. But let’s get real—a 25 basis point or even 50 basis point increase in the fed funds rate is hardly going to torch the bond markets and, in fact, would show the Fed’s greater confidence in the U.S. economy’s ability to both weather higher rates and continue to expand.
Despite a 2.1% decline in the Dow and a 2.5% drop for the S&P 500, both indices are less than 3% below the all-time highs set in mid-August.
Daniel P. Wiener is editor of The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard and the annual FFSA Independent Guide to the Vanguard Funds.