3 Events to Explain Today's Volatility Surge


Faced with a disappointing Chinese GDP number this morning, stocks opened lower this morning and that was the trend throughout the day, with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average closing with losses of 2.3% and 1.8%, respectively. That was stocks' worst single-day performance since Nov. 7. Confirmed reports of twin explosions at the finish of today's Boston Marathon did nothing to soothe investors' nerves late in the trading day.

Add to these factors a breakdown in gold and silver prices -- the yellow metal fell 9% -- and it's hardly surprising that the VIX , Wall Street's fear gauge, surged 43% to its highest closing value since Feb. 25. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)

A tragic catalyst
Before going any further, let me say that I am profoundly saddened by what appears to be an attack on the runners and spectators of the Boston Marathon. As a former marathon runner myself, I'm shocked at the idea that anybody would target an event that celebrates the human spirit, and my first thoughts are with the victims, and their friends and families.

At approximately 2:50 p.m. local time, Boston police responded to a report of two significant explosions along the path of the Boston Marathon. On an intraday chart, you can clearly see the S&P 500 index drop sharply from that time through the end of the trading day. Conversely, the VIX, which was already higher on the day, ran up substantially more during that period.

Today was, in some sense, a perfect storm in terms of volatility, with the threat of terrorism added to fear of a global slowdown. As I mentioned, China's GDP print of +7.7% was disappointing, while the Brookings Institution-Financial Times TIGER (Tracking Indexes for the Global Economic Recovery) shows the global economy "unable to achieve lift-off and facing the risk of stalling," according to Prof. Eswar Prasad, senior fellow at the Brookings Institution.

I think the odds are good that these fears are overstated (although I think the recent decline in the price of gold is meaningful with regard to its long-term outlook); indeed, I think the market's reaction says more about the depressed levels of volatility going into today than the ultimate economic impact of the events that transpired.

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The article 3 Events to Explain Today's Volatility Surge originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA, has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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