Virtually every corner of Wall Street is being rattled by worries that rising interest rates will drive the economy into a recession, spurring large price swings in everything from junk bonds to foreign currencies.
That differs from shock-driven crashes like the ones caused by Covid-19 in March 2020 or the collapse of Lehman Brothers Holdings Inc in September 2008, both of which sent the VIX surging as investors sought to hedge the risk of wild market swings. In fact, this year the VIX hasn’t broken the key level of 40, which many experts see as peak fear signal.The current market more closely resembles the one that followed the dot-com collapse, another period when stock valuations slid from what many considered unsustainable highs.
As deep as it has been, with the S&P 500 down 18% this year, the causes are well-known: tighter monetary policy and surging inflation.On Friday, the S&P 500 rallied over 3%, the biggest gain since May 2020, after a reading on inflation expectations eased and a Fed official suggested recession fears are overdone.