A key gauge of stock market worry will climb in 2024 after tumbling this year to the lowest since before the pandemic struck, and the magnitude depends on the strength of the economy, according to JPMorgan Chase & Co. strategists.

The Cboe Volatility Index will “generally trade higher in 2024 than in 2023, and the extent of the increase depends on the timing and severity of an eventual recession” and potential wider swings that could curb selling of short-term volatility, the bank’s Americas equity derivatives strategists, led by Bram Kaplan, wrote in a note Friday.

The closely watched measure of market volatility traded at about 12.5 on Friday, hovering above its low for this year and reflecting a sense of confidence in the market outlook. The VIX was around these levels in early 2020, before soaring that March as the Covid outbreak upended markets and the economy. The index has averaged around 21 over the past five years.

In the case of an economic soft landing, the strategists expect an average VIX reading in the mid-to-high teens in 2024. The index has averaged around 17 this year. A moderate recession in the second half of the year could push that average to the low 20s, according to the note.

“These scenarios assume that geopolitical risks continue to simmer and periodically flare up, but that tail risks aren’t realized,” the strategists wrote. “Should a tail event occur  — e.g. Middle East war spilling into a broader regional conflict, direct conflict between superpowers, etc. — we could see much higher VIX levels than outlined above.”

As a hedge, JPMorgan’s strategists recommended put-spread collars on the S&P 500 Index — composed of buying a put spread, while simultaneously selling a call option — as a “vanilla equity hedge.” The combined position offers lower-cost protection against a drop in equities prices, while capping gains if the rally continues.

In research late last month, Goldman Sachs Group Inc. strategists also pointed to positions tied to the benchmark gauge, including put spreads and equity collars.

Goldman’s strategists were less convinced that market swings will intensify.

The group’s model indicated “a high probability of a low vol regime for most of the year,” citing “limited recession risk and tailwinds to global growth in 2024.”

Still, the strategists noted that the potential for higher volatility had increased, in part given a broad steepening in the yield curve.

This article was provided by Bloomberg News.