The announcement of new tariffs set to begin on February 1 has cast a shadow over US equity markets, leading to a broad risk-off sentiment among investors. The S&P 500's breadth has worsened, with most sectors, particularly energy, experiencing declines. This shift is attributed to increased uncertainty and potential earnings pressures due to higher costs. As a result, value stocks are underperforming growth stocks, and small caps are lagging behind large caps, reflecting their vulnerability to tariff-induced cost pressures.
The heightened uncertainty has led to a notable increase in the VIX, also known as the "fear gauge," as investors seek protection against potential market declines. The rise in implied volatility and put selling indicates a growing demand for downside risk hedging. Traders are cautious, reducing their exposure to equities ahead of the weekend, wary of further negative developments related to geopolitical tensions.
The VIX is currently at 16.79 as of 16:02 on January 31, up from its last close of 15.84. This increase underscores the market's heightened fear premium as investors brace for potential volatility stemming from the newly announced tariffs.