Dow Industrials plunges, volatility soars
The Dow Jones Industrials plunged by almost 1,500 basis points towards the close of the session on Monday, alongside a surge in volatility as investors rushed to take out protection against further drops in stocks.
As of 2010 GMT the Dow Industrials was trading at 24,027.46, although it had since snapped back, nearly halving its losses to trade at 24,740.71.
In parallel, the Chicago Board of Options Exchange's volatility index or VIX, often referred to by traders as Wall Street's 'fear gauge' had rocketed by as much as 106.41% to hit an intra-session high of 35.73, a move reminiscent of the worst days of the past financial crisis.
Meanwhile, the yield on the benchmark 10-year US Treasury note hit an intra-day low of 2.72% after shedding 12 basis points.
Worth noting, at the weekend ex-Federal Reserve chair Janet Yellen had cautioned that price-to-earnings multiple on stocks were at the "high" end of their historical range, although in remarks to broadcaster CBS she explicitly demured from labelling them "too high".
She was preceded on 31 January by another ex-Fed chair, Alan Greenspan, who was far more blunt, saying both stocks and bonds were in a 'bubble' and that not enough attention was being given to the jump in America's [federal government] debt to GDP ratio.
"Naturally there is a lot of questions being asked about the role of automated trading in the collapse and I'm sure the discussion will happen over the coming days but the important thing is that markets have recovered from the initial shock," said Craig Erlam at Oanda.
"[...] Still, this is unlikely to be what Jerome Powell was hoping when he started his tenure as Fed Chair and already people are asking questions about whether investors were getting ahead of themselves in expecting three or more rate hikes this year. Once the dust settles we’ll surely have a much better idea of whether higher rate expectations are truly to blame for these suddenly shaky markets and a storming return for volatility."
For his part, Naeem Aslam at Think Markets was telling clients: "The most interesting aspect was that we didn’t see the mammoth move in gold and the reason for that is because it was the war of machines and this was not 1987- at least for now.
"[...] The first job for the upcoming Fed President now is not to talk about the interest rate but explain what the Fed has planned to stop this panic. Forget about the rate hike cycle because if the collapse of the market continues at this pace it wnt be long before we will all be talking about QE round 3."