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Why the VIX Index Surged 50% in a Single Day

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Sector rotation and central bankers

The CBOE VIX Index (VXX), which measures volatility in the stock market, surged 51% to $15.16 on June 29, 2017. This reading was closer to its recent high of $16.30 on May 18 and far from its multi-decade low of $9.73, which it touched in April.

A shift in investor preference from growth to value boosted the heavy quarter-end sector rotation in stock markets from the tech (XLK) sector to the financial sector (XLF). The Trump administration’s postponement of the healthcare bill also added to the market’s negative sentiment.

The NASDAQ (QQQ), which is dominated by tech stocks, closed the last week of June at 6,140.42. It posted an ~2.0 loss during the week and fell 0.94% in June, which was its first monthly negative close in eight months.

The S&P 500 Index (SPY) limited its losses for the same week at 0.61%, supported by renewed interest in financial stocks. The stock market found temporary support as investors were bottom fishing in the tech sector, which has seen heavy declines from the tech rout.

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Speculators reduced their positions in VIX

According to the latest Commitment of Traders report released by the Commodity Futures Trading Commission, large traders and speculators reduced their net short positions in VIX futures to 134,996 contracts from 143,845 contracts in the previous week.

The June 29, 2017, spike in the VIX Index (VIXY) is reflected in this data. There is a possibility of further reductions in net short positions for this week, as markets are expected to remain volatile in the holiday-shortened week.

Series overview

In this series, we’ll analyze how different asset classes in the financial markets have reacted to the sector rotation in the equity markets and the hawkish tone of central bankers.

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