The VIX Surges Ahead of the Election: What It Means

Tuesday is Election Day and investors are bracing for some volatility. Late last week, the Cboe Volatility Index, also known as "The VIX," topped 23 for the first time since August, suggesting that some investors are hedging their stock exposure with options ahead of the vote.

Meanwhile, the ICE BofA MOVE Index, a measure of expected U.S. bond market volatility, eclipsed 135, its highest level since Oct. 2023.

It’s understandable that expected volatility measures have moved up ahead of the election. Polls and betting markets indicate that there is heightened uncertainty about which of the two major party candidates will prevail this week, Donald Trump or Kamala Harris.

But while some investors are hedging their bets with derivatives, there’s little evidence that investors are taking their chips off the table—at least in the stock market.

Election-Related Volatility Looms

The SPDR S&P 500 ETF Trust (SPY) is sitting less than 2% off the record high it set in October. The ETF is up a whopping 22% since the start of the year. 

Bonds are a slightly different story. The iShares Core US Aggregate Bond ETF (AGG) has dropped 4% since peaking in September—a decent-sized drop for a broad bond fund—pushing year-to-date gains for the ETF down to 1.7%. 

But it’s hard to disentangle how much of the recent decline in AGG and other bond ETFs has to do with the election and how much it has to do with economic data and shifts in Fed rate cut expectations.

There’s been some chatter about how, depending on who becomes president, deficits could go up, increasing the supply of bonds on the market. Hence, the recent drop in bond prices and rise in yields.

But again, it’s hard to say how much impact that type of speculation has had on the market. 

We’ll find out more on Wednesday once markets begin to react to the election results.