Volatility ETFs Surge With VIX, Crypto ETFs Plunge

Monday’s market sell-off intensified by the closing bell, with crypto-related and volatility ETFs moving the most dramatically. The iShares Bitcoin Trust (IBIT) closed down 13.5%, while the iShares Ethereum Trust ETF (ETHA) plummeted 20%, their declines gathering momentum over the course of the day. 

Volatility ETFs surged even higher than initial reports. The ProShares Ultra VIX Short-Term Futures ETF (UVXY) is up 58%, an increase from the 35% gain reported earlier. Its non-leveraged counterpart, the ProShares VIX Short-Term Futures ETF (VIXY), climbed 43%. 

Leveraged ETFs saw swings, with the ProShares UltraPro QQQ (TQQQ) dropping 8.7% and the inverse ProShares UltraPro Short QQQ (SQQQ) gaining 9.1%.

The Invesco QQQ Trust (QQQ) showed some resilience, finishing down 2.7%, slightly better than the 3.5% decline reported earlier. Meanwhile, the SPDR S&P 500 ETF Trust (SPY) also fell 2.7%, lower than initial reports.

While capital markets started the day in full panic mode, afternoon trading some relief as stock indexes rose from their morning lows and long-term Treasury funds were in the green. But crypto ETFs were still deep in the red.

The SPDR S&P 500 ETF Trust (SPY) dropped more than 3% to start the day's trading but had trimmed some losses as the stock market proxy was down about 2.3% by the afternoon.

Treasury yields declined as the bond market proxy reflected negative sentiment and increased expectations that the Fed may cut by as much as 50 basis points by or before its next meeting in September. The iShares 20+ Year Treasury Bond ETF (TLT) was up 0.3% this afternoon as bond prices have an inverse relationship with yields.

Conditions didn't improve much for crypto ETFs by this afternoon, as the iShares Bitcoin Trust ETF (IBIT) was down 13% and the iShares Ethereum Trust ETF (ETHA) had fallen 18%.

The global sell-off hit U.S. markets Monday causing all three major indices to sink and tech and consumer discretionary ETFs to slump. In Japan, the Nikkei sank 12%, its worst day since the Black Monday crash in 1987. 

Worries about the future of the U.S. economy began Friday after a weaker-than-expected jobs report triggered worries of a potential recession, which would hurt all global markets. SPY, the SPDR S&P 500 ETF Trust dropped 3% while DIA, the SPDR Dow Jones Industrial Average ETF Trust slid 2.75%. 

The sell-off slammed into technology and consumer discretionary ETFs the most, causing QQQ, the Invesco QQQ Trust which tracks the tech-heavy Nasdaq to slump 3.5%. XLK, the Technology Select Sector SPDR Fund dropped 4% dragged down by chipmaker Nvidia, which sank over 7.5%. 

Other members of the "Magnificent Seven" slumped in early trading as investors pivoted away from the big tech and AI names that would be most vulnerable during a recession. Amazon and Tesla dropped 5%, while Microsoft sank over 3.5%. 

MAGS, the Roundhill Magnificent Seven ETF slid roughly 3.8%.

Consumer discretionary ETFs also fell, thanks in part to large holdings in tech companies like Amazon. XLY, the Consumer Discretionary Select Sector SPDR Fund dropped 3.3% in early trading.

VIXY Soars on Spiking Volatility

As fears about the U.S. economy hit markets, volatility spiked. The VIX, the Cboe Volatility Index, also known as the "fear index" spiked more than 78% on Monday to its highest levels since before the pandemic. Volatility ETFs also soared as investors remained concerned about the future strength of the economy.

VIXY, the ProShares VIX Short-Term Futures ETF soared more than 35%. Other volatility ETFs also outperformed the market. UVXY, the ProShares Ultra VIX Short-Term Futures ETF rocketed roughly 54% higher. 

The spike in the VIX could entice investors back into the market. As the old adage says "when the VIX is high, it's time to buy," could mean that many ETFs will be available on a discount as market volatility causes some expensive names to drop.

Fixed Income Rises

Fixed Income ETFs also rose on Monday as bond yields fell across the board as investors looked for safe havens for their money. Yields have an inverse relationship to prices. TLT, the IShares 20+ Year Treasury Bond ETF edged nearly 1% into the green. Other Treasury bond ETFs also rose—GOVT, the IShares U.S. Treasury Bond ETF notched a jump of .15%.

Fixed Income ETFs have mounted a comeback as investors eagerly anticipate rate cuts from the Federal Reserve in September. As the global sell-off continued Monday, investors began to forecast a nearly 92% chance that the Fed will cut rates by 50 basis points, double the rate cut predictions from just a week ago.