The Middle East conflict, which has stretched for over a month, saw Washington and Tehran agree to a two-week ceasefire to facilitate talks aimed at ending the war. The development offered a much-needed breather for markets, which have been quick to respond positively to any signs of de-escalation.

However, the ceasefire situation will largely be shaped by how talks unfold. Underlying risks cannot be eliminated. As a result, market volatility is unlikely to fade completely in the near term. According to Pepperstone Group strategist Ahmad Assiri, the ceasefire provides temporary relief, though it remains dependent on evolving conditions, as quoted on Yahoo Finance. Any setback, particularly near the Strait of Hormuz, could lead to a renewed pickup in volatility and downside risk.

Volatility Risks Are Not Over      

President Trump indicated that the ceasefire depends on the full and immediate reopening of the Strait of Hormuz, as quoted on CNBC. Meanwhile, Iran’s Foreign Minister Abbas Araghchi stated that ships would be permitted safe transit during the two-week window, in coordination with the country’s armed forces and within technical constraints.

This development comes as a positive for global energy markets. Oil prices, which had surged sharply amid the ongoing Middle East conflict, declined significantly following the news. The U.S. benchmark, West Texas Intermediate (WTI) crude, fell by more than 15%, extending its five-day loss to 19.52%, per OilPrice.com.

However, the reopening of the Strait of Hormuz is unlikely to provide complete relief to global energy markets. Damage to critical energy infrastructure in the Middle East is expected to continue to weigh on supply, potentially keeping prices elevated even in the event of a more lasting resolution to the conflict.

The risk of oil-driven inflation remains, with the broader impact of the month-long conflict still unfolding. As a result, inflation concerns remain a key risk for investors (Read: Inflation Risks Likely to Persist: ETFs Worth Watching Now).

The End of Conflict Isn’t the End of Volatility

Per JPMorgan Chase CEO, Jamie Dimon, as quoted on Yahoo Finance, the U.S. economy, while resilient, remains exposed to risks from an emerging credit cycle, ongoing trade talks and lingering uncertainties, on top of the risks already posed by the Middle East conflict. He cautioned that reduced fragility does not rule out the risk of a potential tipping point.

Dimon warned that a key risk remaining in 2026 is inflation gradually rising rather than easing. He noted that a combination of surging oil prices and inflation has historically been a major driver of deep recessions, such as those in 1974 and 1982. He noted that trade negotiations are intensifying geopolitical tensions and high asset valuations increase downside risk if conditions deteriorate.

Additionally, according to the abovementioned Yahoo Finance article, the Trump administration is considering the inclusion of private credit and alternative assets in 401(k) plans, a shift that could broaden risk exposure for individual investors.

The Case for Volatility ETFs

This backdrop highlights the importance of a sharper focus on short-term portfolio positioning, with increased exposure to volatility ETFs emerging as a compelling strategy, both as a hedge and as an opportunity to capitalize on the current market turbulence.

Staying ahead of uncertainty is more effective than reacting to losses after they materialize. Positioning ahead of uncertainty allows investors to manage downside risks better instead of playing catch-up in volatile markets. Volatility ETFs have historically performed well during periods of market stress and can continue to serve as effective hedges as uncertainty and downside risks persist.

Investors with a long-term horizon can look beyond near-term uncertainties. For such investors, increasing exposure to diversified, less concentrated ETFs may provide a more stable path forward. However, in the current economic environment, volatility-focused funds and strategies are ideal for investors with a short-term horizon.

With the potential for increased volatility, adding these ETFs may be a smart strategic move (See: all Volatility ETFs here).

Volatility ETFs to Consider

Below, we have highlighted a few funds that investors can consider to gain increased exposure to volatility ETFs.

Investors can consider iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX Quick QuoteVXX - Free Report) , ProShares VIX Short-Term Futures ETF (VIXY Quick QuoteVIXY - Free Report) and ProShares VIX Mid-Term Futures ETF (VIXM Quick QuoteVIXM - Free Report) .