The recent selloff in global markets has triggered some concerning headlines, being the biggest drop in Japanese stocks since 1987 and the highest reading of the VIX index (a measure of volatility and fear) since the COVID-19 pandemic. As is the case with most stock market selloffs historically, there are multiple factors at play and the selling was most likely attributable to the confluence of these events. The result was a dramatic shift in market sentiment, which had been extremely optimistic and now seems uncertain to the point of full-on fear. Now investors must assess the reaction and the aftermath and decide whether this was an isolated selloff or the start of a broader downturn. To do so, we should look at each of the possible triggers and how they came together to cause such a dramatic repricing of risk in the markets and assess whether each is cause for greater concern.
