Wall Street’s ‘fear gauge’ surges to highest level since May. Here’s what investors should know.

Core Insights - The stock market's "fear gauge," the Cboe Volatility Index (VIX), has risen above its long-term average, indicating increased investor anxiety regarding a potential escalation in the U.S.-China trade standoff [1][2][3] Group 1: VIX Movement - The VIX reached an intraday high of 22.76, marking its highest level since May 23, when it peaked at 25.53, and closed above 20, a significant threshold [2][3] - Historically, the long-term average of the VIX is just below 20, serving as a dividing line between calm and panicked market conditions [3][4] Group 2: Market Conditions - The summer saw a period of low volatility, with the three-month realized volatility for the S&P 500 dropping to its lowest level since January 2020 [5][6] - The divergence between the VIX and realized volatility began around Labor Day, suggesting a shift in investor sentiment [6] Group 3: Investor Behavior - Portfolio managers noted that investors may be favoring call options to bet on further market gains rather than purchasing actual shares [7] - Some traders are also buying put options as a form of insurance against potential market downturns, indicating a cautious approach despite holding onto stocks [8]