Worried Traders Make Dash for Stock Liquidity as Selloff Worsens

Traders are pouncing on the most liquid instruments in the investing world to navigate the equity market turmoil spurred by the Federal Reserve’s newfound hawkish resolve.

With the S&P 500 extending its selloff from a recent record to more than 10%, trading is spiking across exchange-traded funds from leveraged strategies tracking technology shares to those betting on market volatility.

Two hours into Monday trading, the SPDR S&P 500 ETF Trust (ticker SPY), the world’s largest ETF, saw turnover reaching $40 billion -- 170% higher than its 30-day average at that time of a day. Volume in the tech-heavy Invesco QQQ Trust Series 1 (QQQ) was similarly elevated, while that for the ProShares Ultra VIX Short-Term Futures (UVXY), surged to 340% above its daily average.

While past spikes in ETF volume have presaged an end to drawdowns, all bets are off as policy makers gear up to pare unprecedented monetary accommodation extended in the dark days of the pandemic.

Transactions in instruments tracking large swaths of the market tend to rise when investors react to broad economic policy trends.

“ETF volumes have been dominating of late,” said Alon Rosin, Oppenheimer & Co.’s head of institutional equity derivatives. “Investors are simply using the most liquid instruments to pare down long exposures.”