Bourse Fear Gauge Sinks, But Fed Rate Moves Could Reverse That

The market’s annual summer lull appears to have finally arrived after months of tariff-driven volatility. But that doesn’t mean investors should reach for a piña colada and hit the beach.

Over the past few days, investors have become convinced the Federal Reserve is preparing to slash interest rates following soft jobs data and a benign inflation reading.

The Cboe Volatility Index (VIX), also known as the “fear index,” fell to its lowest level of 2025 on Wednesday. Bond market volatility also cooled, with the ICE BofAML Move Index hitting its lowest level of the year, George Glover reported for Barron’s Daily.

It’s not unusual for fear indices to dip in mid-August, when Wall Street traders decamp to the Hamptons, sending volumes plunging. But this summer calm goes beyond seasonal trends.

Over the past few days, investors have become convinced the Federal Reserve is preparing to slash interest rates following soft jobs data and a benign inflation reading.

Treasury Secretary Scott Bessent is among those calling not just for cuts, but for aggressive easing. If the Fed doesn’t act, markets could be jolted.

That anticipation has already rippled into equities.

Homebuilder stocks D.R. Horton and Lennar surged this week, as traders bet that lower borrowing costs will fuel a construction boom. The small-cap Russell 2000 index has also logged solid gains.

Volatility may be plummeting, but investors would be wise to swap their deck chairs for desktops. Piling into the rate-cut trade looks like an easy—but risky—way to chase quick profits.