The stock market's fear gauge spikes 30% to the highest in more than a year as investors' rush out of equities 'turns into a stampede'

• The Vix volatility index surged as much as 31% on Monday as stocks stretched a selloff.
• The CBOE volatility index hit its highest level since November 2020.

The stock market's so-called "fear gauge" soared to its highest mark in 14 months on Monday while stocks slid before the Federal Reserve kicks off its two-day meeting that is widely expected to signal the imminent tightening of monetary policy.

The Cboe volatility index surged as much as 31.5% to 37.95, the strongest level since November 2020, then pared the gain to 27%.

The move took place as the S&P 500 fell for a fifth straight session and entered a correction, or a loss of 10% or more from a recent high. The Dow Jones Industrial Average was also teetered on a correction, which would follow the correction slump for the tech-concentrated Nasdaq Composite last week.

The "rush for the exits turns into a stampede," said trading firm IG in a note Monday, noting the Dow's drop below 34,000, the first one since early October.

"There had been some hope that the new week might see a more optimistic view prevail, but the catalogue of earnings this week, along with a key Fed meeting, have combined to keep investors firmly in risk-off move," said Chris Beauchamp, chief market analyst at IG, in a note.

Earnings from big tech companies including Microsoft and Apple are due this week, while the Fed on Wednesday will release its first policy decision of 2022. Consumer price inflation is at a near 40-year high and the central bank has already signaled to the market its intention to ramp up interest rates and draw back on its monetary response to the pandemic. Traders are looking for the Fed to increase rates four times this year, starting with a 25 basis point increase in March.

But the Fed may be more aggressive than that. Goldman Sachs economists said the US central bank may raise rates at every meeting from March — or seven increases in total.

"In addition, investors will have spent the weekend reading of troop build-ups around Ukraine and the growing tensions between Russia and the West, providing yet another reason to either sell stocks or sit on the side-lines," said Beauchamp.