The Cboe Volatility Index, also known as the VIX, experienced a notable increase, surpassing the 20 mark for the first time since October, driven by growing geopolitical concerns. This uptick indicates a heightened anticipation of fluctuations in the U.S. stock market.
In early trading sessions in New York, the VIX reached 21.36 but later adjusted to 18.65 by 9:17 a.m. This rise in volatility is a reaction to escalating tensions in the Middle East, dwindling hopes for interest rate cuts by the Federal Reserve, and a looming third consecutive weekly loss for stocks. These factors have compelled investors to reconsider market hedges, which had been largely ignored for several months.
After a period of tranquility that saw U.S. stocks hitting new highs at the year's start, the calm has somewhat dissipated since April. Currently, the VIX is on a trajectory to end above its 200-day moving average for the twelfth straight session, marking the lengthiest streak since October 2022.
Rocky Fishman, the head of the derivatives analytical firm Asym 500, commented on the situation. He observed that despite the recent spike, the VIX's level remains within its historical average range. However, the recent downturn in the S&P 500 has led to an increase in the cost of hedging strategies.
Fishman further noted, "The swift response of the volatility markets to the recent events underscores the significant impact geopolitical risks can have on market volatility, potentially driving it much higher."
