Stock Volatility Reaches 6-Month Peak, Bonds Close At 18-Year Lows As Markets React To Israel-Hamas War, Powell's Comments

Thursday marked a day of heightened caution in the financial markets, with volatility surging by approximately 10%, reaching levels not seen in six months.

The CBOE Volatility Index, commonly referred to as the “fear index,” closed at 21.40, a level last seen on March 27, 2023.

Chart: VIX Index Hits Highest Level Since Late March 2023

The escalation of the conflict between Israel and Gaza had a chilling effect on global risk sentiment, as the Israeli military received authorization from government sources to enter the Palestinian enclave.

Simultaneously, a U.S. Navy warship intercepted three missiles fired from Yemen, traveling northward, according to U.S. officials.

"We cannot definitively determine the intended targets of these missiles and drones, but they were launched from Yemen and headed north along the Red Sea, potentially towards locations in Israel," Brig. Gen. Pat Ryder stated during a Pentagon briefing.

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Meanwhile, the U.S. State Department issued a travel warning for all Americans amid the rising risks of tensions and terrorism attacks.

Bond performance continued to lag as yields rose following remarks by Fed Chair Jerome Powell, which conveyed mixed messages to the market.

Powell noted that the Committee is proceeding cautiously regarding interest rates but added that rates may not be sufficiently tight yet. However, he later softened this stance by suggesting that the increase in bond yields could reduce pressure on the Fed to raise rates further.

The iShares 20+ Year Treasury Bond ETF TLT ended 2% lower, closing at the lowest level since May 2006.

Thursday also saw a notable drop in equity markets, with the SPDR S&P 500 ETF Trust SPY down 0.9%, the Invesco QQQ Trust QQQ down 1%, and the iShares Russell 2000 ETF IWM closing 1.6% lower.

Gold effectively acted as a safe haven, with the SPDR Gold Trust GLD up 1.2%.

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