JPMorgan Chase & CoInvestors who want to hedge the risks of the Fed's policy adjustment should consider credit markets, not stock markets, he said.

This is because, while credit markets are expected to be volatile, they are cheaper than other hedging options, strategists such as Marko Kolanovic said in a report released on Monday. Spreads on US high-rated and high-yield bonds have continued to widen since mid-July, as markets digest the global impact of the Delta epidemic and a possible change in tone at the Fed's Jackson Hall meeting, the volatile trading environment is likely to continue into next month.

"while the market is likely to remain strong during the Fed's contraction, investors who want to hedge related risks should consider using credit or credit volatility rather than equities because of the former's more limited upside and lower implied volatility levels," they wrote.

Markets are watching closely for signals about the Fed's retrenchment arrangements, with the annual Jackson Hall meeting this weekend, followed by a September policy meeting shortly after, as the Fed tries to strike a balance between boosting the economy and controlling inflation.

At the same time, unpredictable factors such as the COVID-19 epidemic have made investors nervous, and while the US stock market has fluctuated near record highs, many hedging instruments are relatively expensive. This has prompted strategists to look beyond classic indicators such as VIX, where the three-month contract cost of betting on its rise is the most expensive since early 2018 compared with the contract betting on its decline. Therefore, it is recommended to pay attention to the credit market.

JPMorgan Chase & Co's strategists wrote: "We are bullish on interest rate spreads, but there may be shocks in the short term due to the risk of the Delta virus and the impact of the Jackson Hall meeting."