The Market Is Underestimating Fed Risk Even After Rout, Bank of America Says
- The VIX index is trading above 25 as Fed-related fear returns
- VIX can catch up to volatility in other asset classes: BofA
An eagle sculpture on the facade of the Marriner S. Eccles Federal Reserve building in Washington, D.C.
Photographer: Andrew Harrer/BloombergA late-summer lull is nowhere to be seen in the stock market, with traders recalibrating their expectations after a blunt warning from the Federal Reserve chief in Jackson Hole. Most likely, they have a long ways to go.
So say derivatives strategists at Bank of America Corp., who point to a disparity in price-swing expectations in equities and other asset classes. The S&P 500’s rebound in the two months through mid-August sent the Cboe Volatility Index, or VIX, into a dormant zone next to similar gauges in the rate or currency markets. The rude awakening that Jerome Powell’s speech has been to US shares means that investors need to catch up in pricing policy risk.