VIX ETFs Surge as Tech Leads Market Rout, Omicron Weighs on Risk Sentiment

The Cboe Volatility Index and VIX-related exchange traded funds were in full swing as fear and uncertainty fueled wild market swings this week.

Among the best-performing non-leveraged ETFs of Friday, the iPath Series B S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) increased 10.5% and the ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) advanced 10.4%. Meanwhile, the CBOE Volatility Index climbed 13.2% to 31.6, its highest level since February.

U.S. markets declined on Friday with technology stocks suffering the worst of the rout after the U.S. jobs report renewed expectations that the Federal Reserve will end its stimulus measures early next year, and uncertainty over the COVID-19 Omicron variant continued to weigh on sentiment.

“What you’re seeing is the influence of technology and that is directly related to Apple, Microsoft and Nvidia etc. It’s reverse of what we’ve seen historically where the main drivers of the index are the big stocks,” Paul Nolte, portfolio manager at Kingsview Asset Management, told Reuters.

Wall Street was initially higher at the start of Friday after the Labor Department’s report revealed that nonfarm payrolls rose less than expected in November, with the unemployment rate dipping to 4.2%, its lowest level since February 2020, and wages also rising.

“The numbers are indicating that the economy is very strong. So it is confirmation of some of the things that Powell was talking about on the Hill this week, and is supportive of the fact that you’re probably going to see a more aggressive Fed,” Nolte added.

U.S. equities have experienced wide oscillations this week as investors try to gauge the potential fallout of the Omicron variant on the global economy.

“Even if Omicron is not too virulent, all of this, coupled with a hawkish Fed, speaks to increased caution for risk assets, although if corporate profits continue upward, overall equities should still rise except perhaps many of the most expensive ones,” John Vail, chief global strategist at Nikko Asset Management, told Reuters.

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