The Cboe Volatility Index (VIX) is a widely-followed indicator of stock market volatility over the upcoming 30 days. So, after recently hitting a high of 60.13, it has since dropped almost 50% down to the mid 30s. Even with this decline, market experts are cautioning that investors could be miscalculating future hazards associated with persistent tariff unpredictability. Mandy Xu, the chief volatility strategist at Cboe Global Markets, has a wonderful, scary, spooky story to tell. She explains that the market has not yet priced in the effects of President Donald Trump’s protective tariff policy.
Last week, our VIX [20+ Year Treasury] TLT indicator rocketed up 60+ points. This spike marks an unprecedented jump in bond market volatility. While it has pulled back a bit, it’s still near multiyear highs. This increased bond market volatility is indicative of major pillars of confidence in U.S. markets, wobbling.
Now Xu is noticing a huge increase in TLT put demand. This recent trend is a sign that investors are preparing for higher yields. She illustrated, “What we’re witnessing is an increased opening of puts in TLT, this bearish play to position for yields to rise more.” This major reversal indicates that investors are skittish about the state of the economy.
After Monday’s close, when the S&P 500 ended at 5,405, analysts already have sounded the alarm that the big market gyrations may just be getting started. Xu further pointed out that the macroeconomic forecast is a lot more uncertain. This iterated uncertainty is not completely priced into equity markets. She mentioned that the macro outlook is considerably more uncertain going forward. This continued uncertainty is clearly not priced into today’s equity markets.
In part two, Dan Nathan pointed out key technical resistance levels across the market. He observed, “There’s a lot of overhead resistance, technically, in this 5,750, 5,800 level, and I think you’ll see a lot of folks put on protection there.” That sense of excitement, optimism and energized competition reflects Xu’s view of the current market landscape.
The rising tide of options trading could be an early warning about the overall macroeconomic conditions. At the beginning of March, Xu appeared to talk about the upcoming events on CNBC’s “Fast Money.” He cautioned that stock market investors are miscalculating the risk associated with tariffs.
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