The Cboe Volatility Index, or VIX, often called Wall Street's fear gauge, is starting to signal that investors are adding hedges to their portfolios ahead of September and October, a period that historically tends to bring high volatility to the stock market, according to a report by CNBC. The VIX typically declines in the middle of the year and then rises again during that stretch. Beyond seasonal factors, pressures include the US midterm elections, risks from the direction of interest rates and the large volume of bonds being issued into the market, the central bank's tightening monetary policy stance, and escalating conflict in the Middle East, a combination that Charlie McElligott, a strategist at Nomura, calls the negative risk trinity. He noted that the VIX three-month call skew, a measure of the cost of options used to hedge against volatility over the next three months, sits in the 91st percentile, reflecting that bets on rising US stock market volatility carry a relatively high cost. Luke Rahbari, chief executive of Equity Armor Investments, said that as the year enters its final stretch, volatility is expected to rise in both directions. Meanwhile, the MOVE Index, which measures volatility in the US Treasury options market, remains elevated. Zachary Griffiths, head of Investment Grade and Macro strategy at CreditSights, said both the MOVE and the VIX are near their 10-year averages, while corporate credit spreads remain very narrow compared with historical levels. However, James Wu, a market strategist at Tiger Brokers, said that statistically volatility tends to decline in November, with the VIX tending to fall about 4% after US midterm election results help reduce political uncertainty.
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