Panic Button Is Nowhere in Sight as Memory of 7th S&P Rout Fades

Worried? Yes. But investors have evinced few signs of panic amid a stock market drubbing that has wiped out $3 trillion, going by everything from fund flows to options trading.

One sign nerves are in check: as the S&P 500 dropped more than 3% Friday, the Cboe Volatility Index, a measure of options cost that’s also known as VIX, was stuck near 25, lower than in the six other instances this year when stocks sold off like this.

Exchange-traded fund investors, disheartened by Federal Reserve Chair Jerome Powell’s hawkish remarks at Jackson Hole, quickly pulled money out of stocks. Yet at $1.2 billion, the amount of withdrawals was roughly half the daily outflow experienced around the market’s June low.

Light positioning among professional investors has helped keep emotions in check. Mutual funds are in defensive postures, parking money in cash, while hedge funds cut exposure ahead of market catalysts such as Powell’s speech and looming data on employment and inflation. The lack of full-blown capitulation is a sign that the carnage is not over, especially when rules-based funds and pensions are expected to offload shares in coming days.

“The market traded like hedges were monetized as opposed to added during the move lower,” said Danny Kirsch, head of options at Piper Sandler & Co. “Positioning already short, meaning no need to add downside. Or investors hope this selloff will be contained.”