The U.S. stock market fear index has surged once again. On March 9, the VIX volatility index soared nearly 20% to 35.30 points, reaching its highest level since April 2025. Futures for the three major U.S. stock indices all fell by more than 2% at one point. Major European equity indices opened sharply lower, with France's CAC 40, the Euro Stoxx 50, the UK's FTSE 250, Belgium's BFX, and Sweden's OMXSPI all declining over 2%, while Germany's DAX 30 dropped 1.80%.
Ed Yardeni, founder of Yardeni Research, stated that escalating tensions in Iran are impacting global markets, increasing the risk of a sharp sell-off in U.S. stocks this year. Yardeni raised the probability of a market crash for the remainder of the year from 20% to 35%.
During the trading session, the VIX index climbed 5.81 points to 35.30, marking its highest level since April 2025, with an intraday increase of up to 19.70%. By the latest update, the VIX's gain had narrowed to 9%. This follows a surge of over 24% in the previous trading session.
Energy markets are at the core of this volatility. Due to escalating tensions in Iran and the continued closure of the Strait of Hormuz shipping route, multiple countries have announced production cuts, driving crude oil prices sharply higher. During Monday's session, WTI crude futures surged over 30%, reaching a high of $119 per barrel, the highest since June 2022. As of the latest update, WTI's gains had moderated to 13%.
Rising oil prices have intensified inflation concerns in the U.S., leading to widespread expectations that the Federal Reserve will maintain interest rates at current levels for an extended period, or possibly implement further hikes.
During the session, futures for the three major U.S. stock indices all fell by more than 2%. By the latest update, declines remained above 1%. Last week, the Dow Jones Industrial Average fell approximately 3%, its steepest weekly drop since April 2025, while the S&P 500 declined about 2%, and the Nasdaq Composite dropped over 1%.
Investors are closely watching the Consumer Price Index data due on Wednesday and the Personal Consumption Expenditures Price Index on Friday, though neither report will reflect the recent surge in oil prices.
On the corporate earnings front, Hewlett Packard Enterprise is scheduled to report after Monday's market close, with Oracle, Adobe, and Dick's Sporting Goods also set to release results this week.
Hedge funds have increased their short positions amid ongoing Middle East tensions with no signs of easing, prompting short-term traders to significantly boost bets on a U.S. stock market decline.
According to data from Goldman Sachs' prime brokerage, hedge funds raised short positions in equity ETFs by 8.3% in the week ending March 6. This pace of bearish positioning has only been exceeded once in the past five years.
Escalating conflict in the Middle East has raised concerns about surging oil prices and renewed inflation, reducing overall investor interest in U.S. equities. However, short-term capital has not entirely exited the market. Data show hedge funds increased exposure to individual stocks for the first time in five weeks, indicating that while cautious about the broader market, fund managers are seeking selective buying opportunities.
In a weekend note to clients, Goldman Sachs Managing Director Lee Coppersmith stated, "Positioning and flow data support the view that investors are increasing hedges but have not yet materially exited the market."
Last Friday, the S&P 500 fell another 1.3%, with nine of its 11 sectors closing lower. Notably, although the intraday low was less than 4% below January's record high, Goldman's "U.S. Vol Panic Index" surged to 9.72 out of 10. Analysts noted a significant divergence between index performance and fear gauges, revealing underlying structural stress with selling pressure in individual stocks far exceeding the mild decline in major indices.
Ed Yardeni warned that as Middle East conflicts weigh on global markets, the risk of a sharp sell-off in U.S. stocks this year is rising. He increased the probability of a "market crash" for the remainder of the year to 35%, up from 20%, while lowering the chance of a "melt-up" rally driven by sentiment rather than fundamentals from 20% to 5%.
These adjustments reflect concerns that prolonged conflict could trigger inflationary pressures, hurt consumers, squeeze corporate margins, and complicate the Federal Reserve's policy path. During early Asian trading on Monday, WTI crude futures broke above $100 per barrel for the first time since 2022, dragging down both stocks and U.S. Treasuries.
Yardeni noted that the U.S. economy and equity markets, along with the Fed, face a dilemma: if oil price shocks persist, the central bank's dual mandate will be strained by rising inflation risks and potential increases in unemployment.
The U.S. dollar has emerged as a clear beneficiary, strengthening against nearly all major currencies over the past week, while other traditional safe-haven assets like U.S. Treasuries, the Japanese yen, Swiss franc, and gold declined.
According to Ed Meir, metals analyst at Marex Capital Markets Inc., a swift resolution to the conflict could weaken the dollar and boost gold, while a prolonged war may push the dollar and Treasury yields higher on inflation expectations, reducing the likelihood of interest rate cuts.
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