Volatility ETFs Climb on Stagflation Fears | ETF Trends

The CBOE Volatility Index and VIX-related exchange traded funds spiked Monday as U.S. equities retreated on slowing growth fears in the face of surging crude oil prices and rising inflationary pressures.

On Monday, the iPath Series B S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) increased 5.3%, and the ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) advanced 5.6%. Meanwhile, the CBOE Volatility Index jumped 9.4% to 35.0.

“The market’s on increasingly shaky ground,” Hans Olsen, chief investment officer at Fiduciary Trust, told the Wall Street Journal. “When you combine the price shocks that we’re seeing in the energy complex on the one hand and the galloping inflation that we’re dealing with, on the other hand, that’s a really tough mix for an equity market to hold valuations where we are right now.”

Weighing on equities and fueling the fear trade on Monday, crude oil prices hit their highest level since 2008 as the United States and European allies consider a ban on Russian oil imports in response to Moscow’s aggression in Ukraine, along with uncertainty over when Iranian crude would return to global markets, Reuters reports

“That concern on oil has led to concerns on higher inflation and potential for stagflation,” Mona Mahajan, senior investment strategist at Edward Jones, told Reuters, referring to an environment of slow growth and high inflation. “I think there is just a broader concern that there may be a hit to growth from the consumer given higher prices at the pump.”

Michael Hewson, chief markets analyst at CMC Markets, warned that rising oil prices add to fears about demand-side destruction and a potential global recession.

“It’s hard to see much in the way of significant upside for stock markets now against a backdrop of continued escalation” in Ukraine, Hewson told the WSJ.

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