Wall Street's 'fear gauge' touches over 5-month high amid rate cut, Mideast worries

(Reuters) - Wall Street's "fear gauge" hit its highest in more than five months on Friday due to a sharp pullback in interest U.S. rate cut expectations and escalating geopolitical tensions.

The CBOE Volatility index, an options-based measure of investor expectations for near-term stock market gyrations, at one point hit 21.33 points, crossing the psychological mark of 20 points for the first time since Oct. 30, 2023.

Israel launched an attack on Iranian soil on Friday, sources said, in the latest tit-for-tat exchange between the two arch foes that has threatened to drag the region deeper into conflict and sent investors scrambling for safe-haven assets.

Missiles are carried on a truck as an Iranian army band leader conducts the music band during Army Day parade at a military base in northern Tehran, Iran, on Wednesday. (AP Photo/Vahid Salemi) (ASSOCIATED PRESS)

Meanwhile, with recent U.S. data painting a picture of a resilient economy, money markets now expect the Federal Reserve to cut rates by about 40 basis points this year, well below the roughly 150 bps expected at the start of 2024, according to LSEG data.

The benchmark S&P 500 has slid more than 4% this month through Thursday, cutting its gains for the year to about 5%.

(Reporting by Shristi Achar A and Shashwat Chauhan in Bengaluru; Editing by Savio D'Souza)