With tactical strategies, every investment continually buys a new trade under new circumstances. Now, the conditions that produced last year’s low volatility decline are over and an investment in TCM strategies today means exposure to the VIX just as a potential crisis is brewing and the VIX is beginning to show signs of life.

Extending the 10 month soft-landing stalemate, another move toward the Fed’s “higher for longer” message has created a VIX inflection point that can lead to- but has so far stopped short of- crisis territory.

From the stabilization in equities to corporate credit spreads and the VIX both stopping short of crisis levels, markets have been pointing to this benign outcome… but with the market now expecting rate cuts in 2023 in defiance of Fed assurances to the contrary, the stage could be set for future volatility.

Rather than restraining like a seatbelt, the VIX tends to deploy on contact like an airbag and a lack of deployment under present conditions says nothing about its future potential. In fact, from today’s bargain levels and with the unknown impact of Fed rate hikes lurking, we believe VIX exposures have rarely been more attractive.

Given the historical tendency for major VIX spikes following similar turns in monetary policy, this is perhaps the most critical divergence in markets today. From currently modest VIX levels and considering the magnitude of this year’s rate adjustment, its resolution may not pass quietly.