Vix surges to 15-month high as jobs report spark recession worries

Investing.com -- The VIX, or "fear index", has rallied to levels not seen since in 15 months as Friday's jobs report put recession fears front and center, forcing traders take cover amid a sea of red washed over Wall Street 

The S&P 500 VIX Futures jumped to 29.60 before easing to 25.02, hitting its highest level since March 2023.

The July official jobs report showed that fewer jobs were created last month than expected, with nonfarm payrolls rising 114,000 last month, the lowest since January 2021, and down from a revised 179,000 in June. Economists had seen the July number at 177,000. 

The unemployment rate also rose to 4.3%, up from 4.1%  in June, while month-on-month average hourly wage growth came in at 0.2%, a drop from 0.3% the previous month.

Fears over slowing growth were captured in the bond market, with the 10-year U.S. bond yield plunging further below 4%.

Fed chairman Jerome Powell signaled earlier this week that the Fed isn't behind the curve on rate cuts and pushed back against the idea of a hard landing, noting that the slowdown had been gradual.

But the labor market data Friday, particularly, the tick up in the unemployment rate to 4.3%, which is now above the Fed's 4.1% forecast for the year provided in the June summary of economic projections will likely force the Fed into action. 

"The report is likely to result in the FOMC placing even greater weight on the labor market when considering the timing and pace of rate cuts, something it made clear was already becoming the case at the July meeting," Macquarie said in a recent note. 

Some on Wall Street, however, believe that more aggressive cuts such as back-to-back 50 basis point cut is needed at the September and November meetings to avoid a hard landing. 

"We now think the FOMC cuts by 50bp at both the September and November meetings, followed by 25bp cuts at every meeting thereafter" JPMorgan said Friday, adding that there was a "strong case" for the Fed to act before the Sept. 18 meeting. 

Others, however, aren't ready to make big lean dovish, as the economy isn't yet showing evidence that a recession is on the horizon. 

"The market is pricing in a path of rate cuts that the Fed will only meet if there is evidence that the economy is falling into a recession. Right now, there is no evidence to support that," Jefferies said in a Friday note.