President Donald Trump's early Oct. 2 admission that he tested positive for the coronavirus immediately shook the U.S. equities market, with the "fear gauge" indicating expectations of future S&P 500 volatility spiking overnight.
The Chicago Board Options Exchange Volatility Index, or VIX, climbed by nearly 10.2% between trading sessions after the president's 12:54 a.m. ET tweet, reaching its highest level in three weeks.
Following the after-hours spike, the VIX opened at 29.39, up from the Oct. 1 close of 26.68. The measure calmed somewhat during the trading day and was at 27.23 at 3 p.m. ET on Oct. 2.
The overnight spike in the VIX was a rare instance of when a market move can definitively be pinned to a single event — in this case, the uncertainty over the impact of Trump's positive test, said Tim Edwards, managing director of index investment strategy for S&P Dow Jones Indices.
"Volatility markets have been playing close attention to the election all year, because of the uncertainty that it creates … who will win, will the result be contested, how will the population respond, etc.," Edwards said.
The VIX is a measure of stock market volatility expectations based on S&P 500 index options.
VIX futures are pricing for a heightened level of volatility through the election, Edwards said. "Remember, they act like insurance premiums — based on what might happen, not what probably will," Edwards said.
The VIX, which hit an all-time high of 82.69 on March 16, spiked most recently Sept. 3, hitting 33.60, but then fell by nearly 24% to 25.59 on Sept. 15. It then climbed 11.7%, to 28.58, on Sept. 27.
Volatility is expected to continue through the election, or at least as long as the election's results are in dispute.
"October tends to be volatile in most years, and this is unlikely to be any different," said Michael Hewson, chief market analyst at CMC Markets. "I would expect to see more volatility the closer we get to November 3."
The heightened indicators of volatility did not mean a big immediate move in the S&P 500, which opened Oct. 2 down about 1.2% and was trading nearly 0.4% down at 3 p.m. ET.