VIX Futures Signal Possible Market Turbulence After September Fed Rate Cut
Futures tied to the VIX index indicate potential market volatility following the Federal Reserve’s expected rate cut on Sept. 17. October VIX contracts are trading at a steep premium to September’s, signaling investor concerns about post-Fed market swings.
The VIX, often referred to as Wall Street’s “fear gauge,” reflects expected 30-day volatility in the S&P 500, derived from option prices. Currently, the spread between October and September VIX futures stands at 2.2%, a historically elevated level, while the September front-month contract trades only slightly above the cash index.
“Cash is fairly priced compared to September, but September is extremely low relative to October futures,” noted Greg Magadini, director of derivatives at Amberdata. This indicates traders are underestimating near-term risk ahead of the Fed meeting.
The Fed is widely expected to cut its target rate by at least 25 basis points, with some bets for a 50-point reduction, according to CME’s FedWatch. However, October futures suggest volatility could surge after the rate decision is priced in.
Historically, the VIX moves inversely to equities, rising during periods of market stress. A spike in volatility post-Fed could coincide with downward pressure on stock prices.
Bitcoin (BTC), which often tracks equity sentiment, may also see increased turbulence. Bitcoin’s 30-day implied volatility indices (BVIV and DVOL) have recently reached record correlations with the VIX, highlighting crypto’s growing sensitivity to broader market volatility trends.
