Volatility Jumps After Stable Q1 2024

March 2024 Volatility Briefing

It seems to be all about rates right now. The equity market climbed to all-time highs in March, and volatility stabilized as the U.S. Federal Reserve (the Fed) continued to support markets with suggestions of possible rate cuts. With such an event on the horizon, the Cboe® Volatility Index (the VIX®) was stable during the first quarter, averaging 13.71.

    • The VIX® ended December 2023 at 12.45 before drifting to an intra-quarter low of 12.44 on January 11.
    • The VIX® reached an intra-quarter high of 15.85 on February 13 and closed the quarter at 13.01.

As previously discussed in our monthly Perspective pieces however, it turns out that investor expectations rarely match reality. Sentiment shifted in April as the Fed stepped back from promises for rates cuts, focusing instead on their data dependency, and suggested cuts may not be appropriate in 2024.

    • The VIX® jumped to an intra-year high of 19.23 on April 15.
    • Equity markets turned lower with return of -5.40% from the end of the first quarter of 2024 through April 19.

What’s next? Does the Fed hold rates throughout the remainder of 2024, will they surprise with a cut, or will they find reason to surprise with a hike? Only time can tell. Monetary policy continues its departure from quantitative easing to tightening, or maybe just normalizing. Interest rates are more likely to settle into a range around the long-term average rather than the anomaly of persistently near-zero rates.

    • The monthly average Fed Funds Effective Rate was 4.60% from July 1954 to March 31, 2024.
    • The Fed Funds Effective Rate ended the first quarter of 2024 at 5.33%.

Gateway does not predict Fed actions or market activity, and whatever the Fed decides to do, there are likely to be unexpected bouts of volatility and downside risk along the way. Regardless, away-from-zero rates and double-digit volatility have meaningfully enhanced the ability of options-based strategies, such as those managed by Gateway since 1977, to help investors navigate and benefit from an array of market environments.

Past performance does not guarantee future results. Source: Bloomberg, L.P. and Federal Reserve Bank of St. Louis.