WASHINGTON: The US stock market suffered its largest decline this year, alongside investors snapping up protection against a possible rise in volatility, pointing towards the simmering nervousness over the recent rally. The S&P 500 dipped 0.6 per cent to 2,281, its biggest one-day fall since December 28. The Dow Jones Industrial Average was down 0.6 per cent to 19,971, while the Nasdaq Composite dropped 0.8 per cent to 5,614.
A measure of expected volatility for US stocks responded with its largest move upwards since the US election, but nonetheless remained at historically low levels. Despite volatility remaining low, and sentiment still broadly constructive for equity markets, investors are taking the opportunity to buy cheap protection, hedging against the possibility of a sudden downturn in stock prices. Traders have attributed some of the activity to one investor, now nicknamed “50 cent” because they purchase protection on the Vix volatility index each morning at a price of just $0.50.
“Given all the political uncertainty, it is odd for the Vix to be so low and people are loading up on equity crash protection while it is cheap,” said Pravit Chintawongvanich, head derivatives strategist at Macro Risk Advisors. US airline stocks were among the worst performers on Monday, after President Donald Trump blamed a Delta Air Lines systems outage for widespread confusion over the implementation of his travel ban, despite the technical problem coming well after issues at airports across the country had begun.
