The VIX, a key measure of market volatility, has surged amid heightened political and fiscal uncertainties following President-elect Trump's opposition to a stopgap funding bill. This development adds to the market's unease, already rattled by the Federal Reserve's recent hawkish stance. The potential for a partial government shutdown looms, as House Speaker Mike Johnson's efforts to secure bipartisan support face challenges within his own party. Trump's proposal to address the debt ceiling now, rather than waiting until June, further underscores the legislative hurdles that may arise with a narrower Republican majority in the upcoming Congress.
The combination of political turmoil and the Fed's policy direction has led to increased volatility in both equity and bond markets. The VIX, often referred to as the "fear index," reflects this uncertainty, with its recent jump indicating investor apprehension. The potential for a government shutdown could drive demand for Treasuries as a safe haven, temporarily lowering yields, while the Fed's hawkish pivot suggests a longer-term trend of rising yields. These dynamics contribute to a challenging environment for equities, as higher Treasury yields make stocks less attractive by increasing discount rates.
As of 19:09 on December 18, the VIX stands at 27.71, significantly up from its last close of 15.87, reflecting the market's heightened anxiety over fiscal and monetary policy developments. The index remains well below its 52-week high of 35.05, yet the current level underscores the elevated uncertainty facing investors.