Equity Vol Jumps the Most as Trump Tariffs Roil Markets

Link to Report: Macro Volatility Digest

WHAT STANDS OUT:

• Implied volatilities surged across asset classes last week following Trump’s tariff announcements. Equity vol jumped the most, with the VIX^® index gaining 24 pts to a high of 45. Notably, inflation break evens have fallen across the board post “Liberation Day” as negative growth fears have outweighed any positive price impacts from tariffs. This comes partly as oil prices have collapsed, though oil vol remains the cheapest cross-asset vol, with WTI 1M implied vol trading just barely above its 10-year average while the VIX is trading almost 4 std dev above average.
• While SPX^® saw large drawdowns on both Thursday and Friday last week, the reaction in the vol market was markedly different. Thursday’s sell-off caused very little panic – while ATM vol gained, skew, convexity, and vol-of-vol all barely increased. That all changed on Friday, as hedging demand picked up dramatically. SPX 1M skew steepened 6.3 pts on Friday (vs. 2.2 on Thursday) while vol-of-vol surged 28 pts (vs. ~unch’d on Thursday). That said, even Friday’s move paled in comparison to last August’s. See chart below.
• SPX term structure is now the most inverted since covid, however, most of that is driven by the front-end. While SPX 1M vol trades near a 5-year high, 1Y vol (at 22.9%) is still well below its 5-year high (at 31%) and even below its 2022 high (at 27%), suggesting scope to increase particularly if recession risk increases.

Chart: Last Week’s Vol Spikes vs. August 5th

^{Source: Cboe}

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