$VOLX ‌Volatility and the US Economy: September Tensions After August Calm

August was a period of remarkable calm for US markets. The volatility index VIX fell to 14.13 on August 28th, recording its lowest level of the year. This decline followed sharp fluctuations triggered by news flow regarding the Iran conflict in the spring months. However, experts warn that this calm may be temporary as we enter September.

What Do VIX Levels Mean?

The VIX measures the volatility the market expects in the S&P 500 index over the next 30 days. A level below 16 indicates a calm market environment. A level of 14.13, besides being the lowest value for 2026, is also interpreted as "uncomfortable complacency." These low levels raise concerns that the market has not adequately priced in potential risks.

September: A Historically Weak Month

Historical data shows that the VIX generally tends to rise from the end of August. Since 1990, the median VIX level has been around 16.5 at the end of August, rising to 18 in mid-September and 19 at the beginning of October. During the same period, the S&P 500 loses an average of 0.6% in September, marking its weakest performance of the year. This trend becomes even more pronounced in US midterm election years, with an average decline of 0.8%.

The Fed and Macro Risks

The biggest risk factor during this period is the Federal Reserve's September meeting. Following hawkish remarks by Fed Chairman Kevin Warsh at the Jackson Hole symposium, the probability of a rate hike in September jumped from 30% to 66%. This uncertainty, combined with the historically weak September period, requires investors to be prepared for volatility.

What Does This Mean for Investors?

A rise in the VIX isn't automatically a bearish signal. It simply indicates the market is preparing for a wider price range. However, increased volatility can make taking positions in US indices like the S&P 500 and Nasdaq riskier. Citadel Securities notes that equity hedging strategies became more cost-effective in September because the decrease in volatility made option prices cheaper. JPMorgan is taking a tactically cautious stance toward equities in September due to weak seasonality, Fed uncertainty, and increased geopolitical risks.

This information is not investment advice. Do your own research.