VIX ETFs Surge As Job Numbers Send Interest Rates Climbing

Volatility, as measured by the CBOE VIX, surged more than 7% on Thursday, amid stocks, index futures, and stock ETFs retracing some of their recent gains due to strong jobs data. It sent interest rates rocketing.

The Dow Jones Industrial Average gave up 362 points, or 1.1%, while the S&P 500 and Nasdaq indices fell over 0.8%. The Dow and S&P 500 were headed to hit their worst daily performances since March and May, respectively, but have since recovered from their worst levels as of July 6.

Major stock ETFs that tumbled on Monday included the SPDR Dow Jones Industrial Average ETF (DIA), the SPDR S&P 500 ETF Trust (SPY), and the Invesco QQQ Trust (QQQ), which all lost ground on the day as well.

An increase of 497,000 private sector jobs in June surprised investors and traders. The data comes from payroll processing firm ADP. This represents the most significant monthly gain since July 2022. June’s increase represented more than twice the Dow Jones consensus estimate of 220,000 gained. It’s a major improvement over the downwardly revised 267,000-job addition seen in May. The 2-year U.S. Treasury yield even reached a 16-year peak in Thursday’s session.

More Jobs Data To Come

ADP data is often less dependable and seen as more fickle than other employment data. So, investors are still awaiting Friday’s official June payrolls report. Economists are projecting non-farm payrolls grew by 240,000 last month. This is a decrease from the 339,000 jobs added in May, according to Dow Jones.

However, markets may be spooked. Traders may now be anticipating that a bigger number could spur the Fed to continue increasing rates after a pause. Traders are now pricing in a roughly 95% chance of a hike at the central bank’s meeting later this month, according to CME Group’s FedWatch tool.

“The market clearly would have preferred an in-line number,” said John Lynch, chief investment officer at Comerica Wealth Management. “But because it was more than double expectations. That really ratchets up the fear factor that the Fed would have to be more aggressive.”

Investors looking to use ETFs to trade the VIX as it moves higher over the short- or long-term can look to the iPath Series B S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX), up nearly 5.5% Thursday, and the ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY), also almost 5% higher, along with the CBOE Volatility Index. Potential investors should keep in mind that VIX-related exchange traded products track VIX futures and not the spot price.

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