"The Brightest Star" in the US Market: VIX

On Wednesday, the U.S. stock market experienced its first four-day decline of the year, with the S&P 500 index falling by 0.6% and the Nasdaq dragged down by chip stocks, closing 1.2% lower.

Amid the continuous decline in the U.S. stock market, escalating tensions in the Middle East and approaching rate cuts have led American investors to pay the highest insurance premiums since October last year to protect their investment portfolios from market volatility.

The so-called "fear index" VIX index on Wall Street rose to 19.6 this week, the highest level since October 20 last year. This index measures the prices of options that allow investors to profit from fluctuations in the S&P 500 index.

By the close of the U.S. stock market on Wednesday, the index had slightly fallen to around 18.2, still significantly higher than the 12.6 at the end of March.

Market turbulence has also affected U.S. bonds, with the ICE BofA Move index, which measures bond volatility, reaching 121, the highest level since early January, far exceeding the 86 in March.

Alex Kosoglyadov, Managing Director of Global Equity Derivatives at Nomura Securities, noted a sharp increase in demand for put options (to hedge against stock price declines), contrasting sharply with earlier this year.

He stated that investors were previously more concerned about missing out on stock market gains rather than protecting their portfolios from sell-offs.

"Investors previously bought upside exposure as a hedge," Kosoglyadov said. "The risk is that the market continues to rise, and their performance lags behind the broader market."

Since last week when Iran hinted at retaliating against Israel for attacking its consulate in Damascus, market sentiment has reversed.

According to Mandy Xu, Director of Global Market Derivatives Market Intelligence at the Chicago Options Exchange, Vix options trading volume hit a six-year high last Friday.

Following further escalation in the Middle East situation, Iran launched over 300 armed drones and missiles at Israel last Saturday, with Israel currently considering how to retaliate.

Solita Marcelli, Chief Investment Officer for the Americas at UBS Wealth Management, stated that investors are buying "downside protection" given the tense geopolitical situation.

With strong U.S. economic data leading to a shift in rate expectations, investors are also reassessing their strategies.

Federal Reserve Chairman Jerome Powell stated on Tuesday that inflation may need "more time than expected" to reach the central bank's target level, paving the way for rate cuts.

The dot plot shows that the Fed is expected to cut rates three times by 25 basis points each this year, but investors now anticipate only one to two rate cuts. In January, they had expected six rate cuts