JPMorgan strategists anticipate a rise in the Cboe Volatility Index (VIX) in 2024, after hitting its lowest level since pre-pandemic times.
The extent of the VIX increase will depend on economic conditions, with a potential economic recession contributing to higher volatility.
The VIX, a measure of market worry, recently dropped below 12.5, reflecting optimism in the stock market amid expectations of a soft landing and central bank policy easing in 2024.
In the event of an economic soft landing, JPMorgan expects the average VIX reading to be in the mid-to-high teens in 2024. However, a moderate recession in the second half of the year could push the average VIX to the low 20s.
The strategists suggest using put-spread collars on the S&P 500 Index as a hedge. This involves buying a put spread while simultaneously selling a call option, providing protection against equity price drops at a lower cost.
Geopolitical risks, such as conflicts in the Middle East or superpower confrontations, could lead to even higher VIX levels.
Goldman Sachs, while acknowledging the potential for increased volatility, indicated a high probability of a low volatility regime for most of 2024, citing limited recession risk and positive global growth factors.
Conclusion: JPMorgan’s outlook suggests that while optimism currently prevails, economic factors and geopolitical risks could contribute to heightened stock market volatility in the coming year. Investors are advised to consider hedging strategies for potential market fluctuations.