NEW YORK- After a turbulent start to the year, investors are betting stock market volatility isn’t going away anytime soon.
While tensions between Russia and Ukraine have been the most recent driver of stock market gyrations, many expect inflation, uncertainty over monetary policy and stretched valuations to keep stirring asset prices this year, even if geopolitical fears subside.
The Cboe Volatility Index, often called Wall Street’s “fear gauge,” recently stood at 29, some 11 points higher than its historical median. Volatility futures at least eight months out show markets pricing increased stock market gyrations for much of the year.
Some 78 percent of US investment professionals responsible for fund selection and portfolio construction anticipate a rise in stock market volatility in 2022, according to a recently released Natixis Investment Managers Survey.
“This is not just Ukraine … investors understand that this is not going to be an easy year, “ said ArnimHolzer, global macro strategist at Easterly EAB Risk Solutions, which provides risk mitigation strategies for institutional investors.
Plunging stock markets in the wake of COVID-19 shattered a long period of placid trading and took the VIX to an all-time high of 85 in March 2020.
While the VIX has retreated as stocks more than doubled from their lows, it has not closed below last decade’s median level of 15 in more than two years, one of several signs pointing to expectations of more market swings to come.
“We don’t necessarily see new post-COVID lows for the VIX anytime soon,” said Max Grinacoff, equity derivative strategist at BNP Paribas, who has been recommending strategies such as put options spreads, which are designed to offer protection against volatility.
