The Federal Reserve's recent hawkish rate cut has stirred uncertainty across financial markets, leading to a sharp increase in equity volatility. The Fed's decision to lower rates by a quarter point, while indicating only two additional cuts for 2025, has prompted investors to reassess their monetary policy expectations. This cautious stance has driven the two-year US Treasury yield up by over 10 basis points to around 4.35%, making bonds less attractive and contributing to a sell-off in both stock and bond markets. The strengthening US dollar, buoyed by higher yields, has further exacerbated market volatility, as USD-denominated assets gain appeal among foreign investors, while alternative assets like gold lose their luster. This environment of heightened uncertainty is mirrored in the volatility index's surge to its highest level since August.
The iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) experienced a significant rise, closing at $51.72, up 16.78% from the previous close of $44.29, and further climbing to $53.14, marking a 19.98% increase as of 16:40 on Wednesday, December 18.