Saqib Ahmed Iqbal

NEW YORK (Reuters) – After a turbulent start to the year, investors are betting stock market volatility isn’t going away anytime soon.

Stock market volatility has been driven by tensions between Russia, Ukraine, and many others. However, inflation and uncertainty about monetary policy are expected to continue stirring asset prices even after geopolitical concerns subside.

The Cboe Volatility Index, often called Wall Street’s “fear gauge,” recently stood at 29, some 11 points higher than its historical median. At least eight months ahead, volatility futures show that markets are pricing greater stock market gyrations throughout the year.

According to the recent Natixis Investment Managers Survey, 78% U.S. financial professionals who are responsible for portfolio selection and construction expect a rise of stock market volatility by 2022.

Arnim H. Holzer, global macro strategist, Easterly EAB Risk Solutions which offers risk mitigation strategies for institutional investors, stated that “This isn’t just Ukraine”

The collapse of stock markets following COVID-19 saw a break in a period of calm trading. It took it to 85 on March 2020.

While the VIX has retreated as stocks more than doubled from their lows, it has not closed below last decade’s median level of 15 in more than two years, one of several signs pointing to expectations of more market swings to come.

Max Grinacoff (OTC) is an equity derivative strategist at BNP Paribas. He has recommended strategies like put options spreads which offer volatility protection.

After rising 27% in 2021 the Dow is now down by 8%, and yields on 10-year Treasury have risen about 42 basis points in the past year. This could be in anticipation of tighter monetary policy from the Federal Reserve to combat inflation.

The gyrations haven’t been confined to stocks. BofAML U.S. Bond Market Option Volatility Eliminator Index is a 1-month indicator of Treasuries’ expected volatility. However, corporate bonds have slipped. It stands at near the two-year highs.

Investors said that elevated stock market valuations could pose a risk if volatility continues.

The S&P 500’s price-to-earnings ratio on a forward 12-month basis stands at 25.5, a 38% premium to its 20-year average, according to Refinitiv Datastream.

Brandywine Global Investment Management Portfolio Manager Patrick Kaser stated that stocks could be more sensitive to bad news due to their elevated valuations. This can potentially lead increase volatility.

Kaser stated that anything less than an ordered outcome would almost always be a negative scenario for equity markets.

Kaser prefers stocks and industries he feels will be relatively less volatile. These include chemicals, banking, and healthcare.

Goldman Sachs analysts (NYSE: ) recommended that investors purchase call options. These are designed to target higher prices on high-interest stocks like Bank of America (NYSE :). Wells Fargo (NYSE:).

In a report, they stated that “higher interest rates” have been the key factor in equity market volatility over recent weeks. We believe rate-reactive tools are important to investors.

However, not everyone is convinced that higher volatility will continue. JP Morgan analyst said Friday that market have probably priced in inflation risk and monetary policies. The analysts recommended that investors purchase bearish VIX put options. These would allow the VIX to increase in value should it fall by July. That is when volatility tends to be seasonal quiet.

Others however, are betting calm won’t return anytime soon.

Antonio Cavarero (MI:) Insurance Asset Management, Milan said that he expected volatility to continue for a few months. He spoke at the Reuters Global Markets Forum Thursday.

His words were: “I am probably a bit more confident for the second part, but between now and then it is likely to be a bumpy ride.”

This story is a rewrite to correct a spelling error in the headline. There are no changes to the content.