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Fed Decision Slams VIX ETF Back Toward All-Time Low

Thursday, September 22, 2016 4:33
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(Before It's News)

Following the Federal Reserve’s decision yesterday to leave rates unchanged, investors’ favorite volatility gauge — which had been rising in recent weeks — was decimated in short order.

In a vote of 9-to-3, the consortium chose not to change its interest rate policy, although it kept the door open for a rate hike before the end of the year. The Fed simply “kicked the can” once again, and its messaging from the prior meeting was mostly the same.

Everbank president of world markets Chris Gaffney commented:

All indications point toward a continuation of the abnormally low interest rate policies by the BOJ, ECB and FOMC. Central bank credibility has taken a hit lately, and today’s announcements both here in the US and by the BOJ have not done anything to solidify what has become an extremely fragile confidence in the leaders of the globe’s major central banks. Lower rates for longer and continued weakness in global GDP growth should benefit precious metals prices on a ‘safe haven bid’.

The volatility index, the VIX, plunged 16.5% yesterday following the Fed announcement, and VIX-focused ETFs like the VXX didn’t fare much better:

VXX-2016-09-22

The iPath S&P 500 VIX Short Term Futures TM ETN (NYSE:VXX) closed at $34.66 on Wednesday, down $2.98 (-7.92%). In premarket trading today, VXX was down another $0.80 (-2.31%) to $33.86, approaching its all-time low of $33.32.

Barring an unforeseen event, expect volatility to continue to be muted at least until December, as the Fed will almost certainly not change its policy prior to the November presidential election.

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