Volatility ETFs Climb as Traders Hedge Risk Ahead of Fed's Jackson Hole Conference | ETF Trends

The CBOE Volatility Index, or VIX, and volatility-related exchange traded funds jumped Monday as another round of aggressive interest rate hike speculation stoked fears of a potential economic recession ahead.

Among the best performing non-leveraged ETFs of Monday, the ProShares VIX Short-Term Futures ETF (VIXY) rose 5.0%. Meanwhile, the CBOE Volatility Index surged 16.3% to 24.0.

Over the past few weeks, equities have rallied with a return to a risk-on mood on growing expectations of a more muted Federal Reserve monetary policy outlook in face of falling inflationary pressures. The risk-on sentiment helped push the VIX down to slightly below the 20 level for the first time since April.

However, market observers are refocusing on on Fed Chair Jerome Powell’s speech at the central bank’s annual conference in Jackson Hole for potential hints on how policymakers will act ahead.

“Powell speaks on Friday and there’s a risk that he becomes a little bit more hawkish when talking about the interest rates,” Paul Nolte, portfolio manager at Kingsview Investment Management, told Reuters. “At this point, a little bit of a correction in the market is not anything to get worried about just yet.”

Economists are mostly betting on a 50 basis point rate hike in the Fed’s upcoming September meeting.

“Jackson Hole is something the market is starting to get nervous about,” Hani Redha, a portfolio manager at PineBridge Investments, told the Wall Street Journal, adding that some expect the Fed to be less aggressive on rate hikes as economic data worsened but “there is chatter that perhaps Powell will try to reverse that perception.”

The Fed has maintained its goals of tamping down inflationary pressures, and consumer price gains remained elevated.

“He may try to send a clear message that even if they have a slower pace of rate hikes, that won’t signal a lower peak rate or that they will be quick to cut rates,” Ed Moya, senior market analyst at Oanda, said in a note, according to Bloomberg. “After this week, Wall Street should not be surprised if Fed fund futures start pricing in rate hikes for next year. This could be the week many return from vacation and double-down on their bear-market rally calls.”

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