Investors dump risky assets in worldwide market rout as CBOE’s Volatility Index ‘fear gauge’ soars

A sell-off in the riskier corners of the market deepened as the UK’s plan to lift its economy fuelled concerns about heightened inflation that could lead to higher rates, adding to fears of a global recession.

It was a sea of red across equity trading desks, with the S&P 500 briefly breaching its June closing low before paring losses. Chartists looking for signs of where the rout might ease had identified that as a potential area for support. Yet the lack of full-blown capitulation may be an indication the drawdown isn’t over. Goldman Sachs slashed its target for US stocks, warning that a dramatic upwards shift in the outlook for rates will weigh on valuations.

As risk-off sentiment took hold, Wall Street’s “fear gauge” soared toward a three-month high, with the CBOE Volatility Index momentarily topping 30. Throughout the year, the US equity benchmark has hit near-term lows when the VIX was above that level, according to DataTrek Research. Trading volume in the S&P 500 was above the average of the past month, data compiled by Bloomberg showed.

A surge in the US dollar to a fresh record swept aside global currencies. The euro slid to its weakest since 2002, while sterling hit its lowest in 37 years – with former US Treasury Secretary Lawrence Summers saying that “naive” UK policies may create the circumstances for the pound to sink past parity with the dollar. Treasury 10-year yields fell after earlier topping 3.8 per cent.

“It appears that traders and investors are going to throw in the towel on this week in what feels like ‘the sky is falling’ type of event,” said Kenny Polcari, chief strategist at SlateStone Wealth. “Once everyone stops saying that they ‘think a recession is coming’ and accepts the fact that it is here already – then the psych will change.”