The CBOE Volatility Index and VIX-related exchange traded funds advanced Tuesday after Moscow authorized the use of force outside of Russia and troops entered the Donetsk and Luhansk regions of Ukraine, fueling fears of an imminent all-out war.
On Tuesday, the iPath Series B S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) increased 1.9%, and the ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) advanced 1.7%. Meanwhile, the CBOE Volatility Index jumped 9.7% to 30.5.
Investors braced for further volatility as the markets watched for the international responses to the military escalation, along with President Vladimir Putin’s next move.
Russian forces entered two separatist-controlled regions in Ukraine after Moscow recognized the independence of two breakaway regions, the Wall Street Journal reports.
“Investors are de-risking as the situation escalates and uncertainty builds regarding the path forward,” Lindsey Bell, chief markets and money strategist for Ally Invest, told the WSJ. “Markets are likely to be on edge for the next several weeks.”
European countries have already announced sanctions against Russia. German Chancellor Olaf Scholz warned the Nord Stream 2 gas pipeline would be denied certification and the United Kingdom acting on Russian banks, Reuters reports.
“The bottom line is that fear factor remains elevated, and until we get some sort of a clearer picture of what Putin may or may not do, the market is just going to stay in a state of confusion,” Peter Cardillo, chief market economist at Spartan Capital Securities, told Reuters.
Further fueling the uncertainty, crude oil prices spiked, adding another layer of concerns as investors worried about the potential Federal Reserve actions aimed at reeling in high inflation.
“If oil prices continue to rise and go above $100 and stay there for a sustained period of time that means you’re going to have even higher inflation,” Cardillo added.
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