Analysis: VIX Curve Steepens, Stock Market Anxiety Rises Ahead of US Midterm Elections

Although Nvidia's upcoming earnings report and Fed Chair Warsh's speech at the Jackson Hole symposium are the main events investors are watching this week, traders in the equity derivatives market are already positioning for a potential rise in volatility around the US midterm elections in November.

Volatility traders closely monitoring the futures market tied to the VIX fear gauge note signs of increased demand for hedging S&P 500 volatility around the election period. VIX futures expiring in September currently trade at around 17.4, but the October contract has risen to 19, and the November contract has further climbed to 19.7.

"We're approaching the US election, and you're starting to enter a window where the election can have an impact on the VIX," said Matthew Thompson, co-portfolio manager at Little Harbor Advisors. "You can already see this 'steepening' in the VIX futures term structure."

A study by analysts at Cboe Global Markets shows that since 1945, actual volatility has been higher in 80% of midterm election years compared to the previous year, with an average increase of 3.5 volatility points. In years when the White House and Congress are controlled by the same party, actual volatility has increased by an average of 6 volatility points.