SPX Due to Be More Volatile in 2024 With VIX Trading at its Lowest Since 2020
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SPX Due to Be More Volatile in 2024 With VIX Trading at its Lowest Since 2020

After tumbling to lowest point in nearly 4 years, JPMorgan expects VIX to rebound in the near term.
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The CBOE Volatility Index (VIX), a gauge of the S&P 500’s volatility, has plummeted to the lowest level since January 2020 in the wake of the latest market rally. Most strategists believe the shifting macroeconomic landscape will see the VIX resurge in 2024, with the SPX likely to be more volatile again soon.

JPMorgan’s 2024 Predictions for VIX Index

Strategists at JPMorgan Chase (NYSE: JPM) expect the VIX index to return upward in 2024 after dropping this month to the lowest level since before the 2020 pandemic.

According to the bank’s equity derivatives analysts led by Brem Kaplan, the index is projected to surge to higher levels in 2024 compared to this year. However, the extent of that rise depends on a mix of factors. These include the timing and degree of a potential recession and further fluctuations that could hamper short-term volatility sales. 

The VIX Index is currently at 12.6, marking its lowest level since January 2020. Its descent came amid a significant six-week rally in US equities, fueled by improved market sentiment as investors increasingly expect a soft landing for the US economy and the Federal Reserve to begin cutting rates sometime in 2024. 

In case of a successful soft landing, JPMorgan’s strategists predicted VIX to be in the mid-to-high teens throughout next year, on average. That would represent a stark difference from the index’s 2023 average value of about 17. On the other hand, a potential economic recession in the second half of 2024 could propel VIX to an average reading of the low 20s, the analysts added. 

“These scenarios assume that geopolitical risks continue to simmer and periodically flare up, but that tail risks aren’t realized. Should a tail event occur  — e.g. Middle East war spilling into a broader regional conflict, direct conflict between superpowers, etc. — we could see much higher VIX levels than outlined above.”

– JPMorgan’s strategists wrote.

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Stock Market’s Momentum Subdued as $5T Options to Expire This Week

After the US stock market’s multi-week winning streak since late October, propelling the S&P 500 to its highest level since January 2022, recent weeks have seen the index trading within a narrower range. 

This subdued activity may be attributed to the unprecedented $5 trillion in US stock options set to expire on Friday, of which 80% are tied to the S&P 500. As the largest such expiration in at least two decades, market analysts said that dealers engaging in preemptive book squaring ahead of this event are contributing to the mitigation of the market’s upside, thus constraining its volatility. 

The S&P 500 is up over 21% in 2023, largely driven by the Big Tech companies thriving on the ongoing AI craze.

Do you agree with JPMorgan’s views that the VIX Index will likely witness a resurgence in 2024? Let us know in the comments below.