The increasing volatility in US stocks is prompting a quest for defensive assets, but investors may find limited options for refuge.
The Cboe Volatility Index, a key gauge of investor anxiety on Wall Street, reached its highest point in nearly seven months on Friday, coinciding with a weekly decline in the S&P 500. Although the benchmark stock index has fallen by 8% since late July, when it reached its annual peak, it remains 10% higher year-to-date.
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Traditional safe havens that can assist investors in weathering market turbulence are becoming scarce. Even sectors such as utilities and consumer staples, which are typically favored by cautious investors during choppy market conditions, have been affected by the recent downturn in the S&P 500.
The Japanese yen is currently trading at its lowest level against the US dollar in about a year. US government bonds are heading for an unprecedented third consecutive annual loss, with yields on the 10-year Treasury note – which move inversely to bond prices – at their highest since 2007.
In response to these challenges, investors are increasingly turning to other traditional safe-haven assets like the US dollar and gold, as well as short-term debt.
