U.S. stocks suffered a heavy blow! The VIX index soared but the market's selling still appears rational

U.S. stocks experienced a "Black Friday" as the S&P 500 index and Nasdaq Composite index dropped by 2.71% and 3.56% respectively, marking the largest single-day decline since April; the Dow Jones Industrial Average fell by 1.9%. The worst single-day performance for U.S. stocks since April has led to a significant increase in volatility indicators, although their levels are still far below those during periods of sustained selling. Data shows that the Chicago Board Options Exchange Volatility Index (VIX) surged by 31.65% on Friday, reaching 21.63, breaking above 21 for the first time in over two months - the VIX index has a reverse relationship with the S&P 500 index about 80% of the time. Since April, U.S. stock market volatility has been suppressed, with the VIX index remaining below 17 multiple times (its long-term average is 20), and the S&P 500 index has been rising for five consecutive months. According to Vishal Vivek, stock and derivatives trading strategist at Citigroup, prior to Friday, the S&P 500 index had not seen a single-day change of over 2% for 100 consecutive trading days. Vishal Vivek stated: "After a period of calm in volatility, it is not surprising to see a significant rise in the VIX index like we have seen today due to a headline news that worried investors." Although the jump in the VIX index this time seems dramatic compared to recent trends, it is still just a "small ripple" compared to previous market turmoil periods. During the 2008 financial crisis, the VIX index exceeded 89, and rose above 85 at the start of the COVID-19 pandemic. On April 2, 2025, when Trump announced tariffs on trading partners, the index briefly touched 50. Mandy Xu, head of global market intelligence for derivatives at the CME Group, said that the VIX index at 21 level "is not a cause for concern." She pointed out: "Some degree of price reassessment driven by news is normal, but the market is not in panic mode." Derivatives traders also believe that the selling process this time is relatively orderly. Alex Kosoglyadov, managing director of global equity derivatives at Nomura Holdings, said, "We have not seen clients rushing to buy protective positions." He noted that due to the relative balance between long and short positions in the options market, market makers and traders are well-prepared for the increase in volatility, stating that "dealers' positions are very clean, more balanced than during the selling periods in April 2025 or August 2024." Despite clear signs of slowing in the U.S. labor market, government shutdowns, and concerns about the independence of the Federal Reserve, the S&P 500 index has not seen a single-day decline of over 1% since early August. Whenever U.S. stocks fall, buyers tend to quickly enter the market, betting that algorithmic trading will continue to offset macroeconomic concerns. Vuk Vukovic, Chief Investment Officer and Co-founder of Oraclum Capital LLC, said, "There is strong support in the market - every time there is a decline, buying pressure quickly pushes it back up." "The drop this time is slightly larger, but we are still at the level of two weeks ago, so it's not too dramatic." He added, "This seems more like an opportunity for sellers of volatility to enter the market, rather than a time to hedge."