Investors seek hedges as midterms and geopolitical risks threaten market calm
Investors are starting to seek more protection against stock market swings as a historically volatile period for markets approaches.
TL;DR
- Investors are seeking more protection against stock market swings due to an approaching historically volatile period.
- The Cboe's VIX volatility index, a measure of expected S&P 500 volatility, is rising.
- September and October are historically volatile months for the VIX.
- Upcoming U.S. midterm elections, interest-rate risk, central bank policies, and Middle East hostilities are contributing factors.
- Options that protect against a jump in stock-market volatility over the next three months are priced unusually high.
- Stress in the Treasury market, as indicated by the elevated MOVE Index, is potentially spilling into stocks.
- Some measures, like the MOVE Index and VIX being near 10-year averages and tight corporate credit spreads, suggest markets are not under unusual stress.
- Volatility may increase as markets emerge from the summer period, but could ease later in the year.
- Volatility tends to decline in November as midterm election results reduce political uncertainty.