Trade tensions escalate! Wall Street's "fear index" soars to a nearly five-month high

According to the Zhitong Finance APP, after experiencing a rare calm summer, Wall Street's fear index has surged again, with investors increasingly worried about the potential escalation of the China-U.S. trade dispute. The Chicago Board Options Exchange Volatility Index (VIX), also known as the "fear index," briefly rose to 22.94 points during trading on Tuesday, the highest level since May 23, when the index touched 25.53 points. Although the increase retreated by the close, the VIX still ended above 20 points, an important dividing line for measuring market sentiment. Since the VIX was introduced in the early 1990s, its long-term average has been slightly below 20 points, making this level often seen as a critical point where the market shifts from calm to tense. The VIX reflects the implied volatility of options linked to the S&P 500 index for the next month and is typically viewed as an indicator of market panic or risk expectations. This summer, U.S. stocks performed steadily, with the three-month actual volatility of the S&P 500 dropping to its lowest level since January 2020 last week, reflecting the market's dull trading and investors' complacency. However, since early September, the implied volatility and actual volatility began to diverge, indicating that some investors are positioning defensive strategies through options. Some investors have increased their holdings of put options to hedge against potential risks, while others prefer to replace direct stock holdings with call options, betting on further market gains. Starting at the end of September, signs of market unease gradually emerged. From September 29 to October 3, the S&P 500 and VIX rose in tandem for five consecutive trading days, a situation not seen since 1996, suggesting that the market's calm period may have ended. Analysts point out that market sentiment is like a warehouse full of dry firewood, where just a spark can trigger volatility, and last Friday's sell-off may have been that spark. Recently, U.S.-China trade friction has once again become a flashpoint. Last Friday, President Trump threatened to impose a 100% tariff on all Chinese imports. Although trade news has caused short-term market fluctuations, some institutions believe that this cycle of "escalation-cooling" has gradually numbed investors. In contrast, signs of instability in the credit market may be more concerning. JP Morgan CEO Jamie Dimon warned on Tuesday that the bank has incurred losses on loans to a subprime auto lender, Tricolor, and that credit risks could widen. At the same time, institutional investors like BlackRock have requested redemptions from funds under Jefferies, which have suffered significant losses due to the bankruptcy of auto parts supplier First Brands