Wall Street whiplash schools traders on fragile modern markets
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Greed has overcome fear on Wall Street — and the market cataclysm that shook up the world in recent weeks may well prove a mere blip on long-term price charts. Yet the summer rout will also go down as a particularly extreme example of a trend that’s shaped modern finance for years now: Increasingly frequent shocks blowing up with little warning. As fast as volatility erupted, it has calmed, with the S&P 500 posting its biggest weekly gain since November, junk bonds scoring a week of gains and Treasury yields stabilizing. In one especially vivid example, the VIX Index, Wall Street’s “fear gauge,” has just broken two records: the fastest-ever spike of 25 points or more, and the fastest comeback from the spike, according to UBS Group AG. The reversals are a nightmare for anyone trying to attach sensible explanations to the motion of markets. Was the trigger for the August swoon technical in nature, or something more sinister like fear of...