Why Stock Market Volatility Has Risen 85% Since Trump's Inauguration
Wall Street's so-called fear index is surging, contributing to ongoing uncertainty about the state of the stock market.
The Chicago Board Options Exchange's CBOE Volatility Index (VIX) is a measure of the market's expected volatility based on S&P 500 options. Over the past six months, the VIX has nearly doubled from a low of 12.77 on Dec. 6 to its current reading of 27.86.
For context, that represents the highest reading since last summer's market downturn when the VIX registered 38.57 on Aug. 23. Zooming out, on the five-year VIX chart, volatility has now reached its highest level since Oct. 21, 2022, when it registered 29.69 at the tail end of the last bear market.
Since President Donald Trump assumed office in January, market volatility — as measured by the VIX — has risen nearly 85%.
Factors fueling volatility
The surge in the VIX can be attributed to several factors. Softening economic data — such as a weaker-than-expected February jobs report, unemployment claims rising to their highest level since October 2024 and cooling consumer confidence — has contributed to uncertainty and, in turn, a rise in volatility.
Tariffs and lingering inflation are additional layers, with the president's back-and-forth declarations leaving the market in limbo. At its January meeting, the Federal Reserve paused its interest rate cuts, citing concerns about potential fallout from the tariffs and an uptick in inflation. For January, the Consumer Price Index (CPI) — which measures the year-over-year change in prices of goods and services — showed the rate of inflation rose 3.0%. February's CPI print is due to be released Wednesday.
The central bank suggested it would hold rates steady and even entertain hiking rates if its 2% CPI target is threatened. Meanwhile, Trump has again delayed tariffs against Mexico and Canada, the U.S.'s two largest trade partners, further fueling uncertainty.
The lack of economic clarity has sparked fears of a recession after the Federal Reserve Bank of Atlanta last adjusted its gross domestic product forecast for the first quarter of 2025. The downward revision saw the bank's estimate fall from nearly 4% expansion in late January to a contraction of 2–3% this week.
Stock market fallout
The jump in volatility has sent the major indices spiraling, with sell-offs beginning in late February. At the time of writing:
- The Dow Jones Industrial Average is deep into a pullback, having lost 7.30% since its six-month high Dec. 4
- The S&P 500 is on the verge of a correction, having lost 8.41% since its year-to-date high on Feb. 19
- The Nasdaq has officially entered a correction, having lost 12.58% since its six-month high on Dec. 16
This has resulted in a leap in bearish investor sentiment. The American Association of Individual Investors (AAII) Sentiment Survey for the week ending Feb. 26 showed bearishness at 60.6% — the highest reading since the survey registered 60.81% on Sept. 29, 2022. That negative sentiment carried over into March, with the first AAII survey of the month evidencing still-high bearishness of 57.1%.
Compounding investor fears is a notable rotation out of cyclical and growth positions and into defensive positions. Over the past month, the consumer staples sector leads all 11 S&P 500 sectors by a sizable margin, posting a 3.56% gain. Over the same time, technology and consumer discretionary have suffered the most, posting losses of 11.42% and 12.38%, respectively.
More from Money:
Cash Isn't King: Why Investors Shouldn't Sideline Their Money Right Now
Stock Market Outlook Plunges as Investors' Tariff Fears Grow
Better Than a Piggy Bank: 3 Ways to Invest for Your Kid's Future