Volatility made a roaring comeback in August, as political risks emanating from North Korea and the Trump White House weighed on the bull market.

CBOE Volatility Index Spikes

The Chicago Board Options Exchange (CBOE) Volatility Index spiked to nine-month highs on 10 August, as stocks sold off following President Trump’s confrontation with North Korea. The Wall Street fear gauge surged about 44% to 16.04, the highest since the November presidential election.[1] That’s still well below the historic mean of around 20, but underlies growing tension in the financial markets. After all, the CBOE VIX reached a record low just a few weeks earlier.[2]

The VIX trades on a scale of 1-100, and is inversely related with the S&P 500 most of the time. In other words, the volatility gauge usually rises when U.S. stocks fall and vice versa.

Trump’s Role in Recent Volatility

Another bout of risk aversion hit the financial markets this week as President Trump signaled that he is prepared to shut down the government if Congress fails to fund a border wall with Mexico. The promise to erect a massive wall on the border with Mexico was a major campaign platform for the Trump administration, which is once and for all trying to stem the flow of illegal migrants.

With the S&P 500 Index headed for a monthly decline, investors can expect the fear-trade to linger for a while longer. This is especially true as we head into September, which has been dubbed the worst month of the year for equities. September is the only month of the year in which the Dow Jones Industrial Average has been lower for the past 20, 50 and 100 years, according to an analysis by Bespoke Investment Group.

“Market bulls never like when our September seasonality report comes around, because it has historically been the worst month of the year for stocks,” Bespoke wrote last August in a comment that still applies to today’s investment climate.[3]

September is expected to be a highly active month in the financial markets, as investors return from summer holiday. High-profile central bank meetings will also make headlines, with the Federal Reserve and European Central Bank scheduled to deliver policy decisions.

[1] Mark Decambre (10 August 2017). “Wall Street’s ‘fear gauge’ nine-month high as ‘fire and fury’ sparks stock-market slump.” Market Watch.

[2] Evelyn Cheng (26 July 2017). “Wall Street’s ‘fear index,’ the VIX, falls to record low as traders maneuver after Fed statement.” CNBC.

[3] Bob Bryan (30 August 2016). “We’re about to enter ‘the worst month of the year for stocks’.” Business Insider.