Q2 GDP Crashes Most Since World War II, Unemployment Claims And VIX Volatility Index Spike

Written by Dana Sanchez
Second-quarter gross domestic product crashes the most since World War II, unemployment claims and VIX volatility index spike. The Department of Labor in New York turns people away due to coronavirus concerns in this March 18, 2020 photo. (AP Photo/John Minchillo, File)

The U.S. had its steepest nosedive ever in economic activity in the second quarter, with the gross domestic product from April to June plunging at an unprecedented annualized rate of 32.9 percent, according to the Commerce Department — worse than the Great Depression and Great Recession.

The second-worst drop in GDP was a 10-percent decline in 1958.

The latest report “just highlights how deep and dark the hole is that the economy cratered into in Q2,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s a very deep and dark hole and we’re coming out of it, but it’ going to take a long time to get out.”

A week ago, two top Trump economic advisers — Larry Kudlow and Treasury Secretary Steven Mnuchin — said in interviews that they still saw signs of a “V-shaped” economic recovery, even with coronavirus cases climbing.

Mnuchin said he expected a rebound in the third quarter of 2020, according to an interview with Fox News.

However, the virus is spreading rather than receding, killing 156,245 people in the U.S.

“While employment, spending and production have improved since reopenings picked up in May and massive federal stimulus reached Americans, a recent surge in infections has tempered the pace of the recovery,” Bloomberg reported.

“The outlook for the labor market has darkened in recent weeks,” Moody’s Analytics wrote on July 30, according to Yahoo Finance.

GDP measures all goods and services produced during the period. It took a hit because of less personal consumption, fewer exports, lower inventories and lower investment and spending by state and local governments, CNBC reported.

The Volatility Index or VIX is a real-time market index created by the Chicago Board Options Exchange (Cboe) that represents the market’s expectation of 30-day forward-looking volatility. Derived from the price inputs of the S&P 500 index options, it measures market risk and investors’ sentiments. It is also known as the “Fear Gauge” or “Fear Index.” Investors, research analysts and portfolio managers look to VIX values as a way to measure market risk, fear and stress before they make investment decisions. 

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Cboe’s S&P 500 options, also unique in the industry, are often part of traders’ VIX trading strategies, Bloomberg reported.

When stock markets plunged in March due to the pandemic, the VIX skyrocketed like it hasn’t since the 2008 recession. It shot up to a level of nearly 83 on March 16, after years of remaining mainly well below 30.

Second-quarter trading in the VIX futures was anticlimactic, plunging 47 percent over the same period last year, and VIX options volume fell 33 percent, according to a Goldman Sachs report.

“March’s volatility spike that saw the VIX climb into the 80s appears to be a thing of the past, but that doesn’t mean the market isn’t susceptible to another sharp and potentially violent rise,” David Dierking wrote for ETF Focus.