Sometimes, the market can make things seem worse than they are — and that’s exactly what happened with the VIX this week. Often called “Wall Street’s fear gauge,” the CBOE Volatility Index (VIX) measures volatility in S&P 500 options, offering early clues about investor sentiment. Historically, it has served as a barometer for rocky times in the market and spiked during major disruptions like the 2008 Financial Crisis and the 2020 COVID-19 crash. This week, it added a third notable event: the Bank of Japan’s surprise interest rate hike.

• On Monday, the VIX surged by 42 points, marking its largest single-day increase since 1990.
• Many traders had expected the market to stay calm, so when it began to fall, they had to quickly adjust their bets, which exacerbated the declines.

The VIX fix: Despite this escalation, global markets quickly showed signs of resilience. Although a rising VIX typically signals heightened uncertainty, this recent jump was triggered by global market downturns, prompting investors to buy options for protection against short-term drops. The swift recoveries of the Japan Nikkei 225, Nasdaq, and S&P 500 the following day suggest that the VIX’s burst reflected traders’ reactions to unexpected news rather than a fundamental decline in market health.