Nine months removed from the beginning of the coronavirus pandemic and with financial markets creating new all-time highs, the CBOE Volatility Index (VIX) has recently fallen to its lowest levels since early March, only slightly elevated above its historical averages. The VIX is a real-time market index which represents the S&P 500’s volatility expectations over the upcoming 30 days. It is often referred to as the “fear gauge” for its ability to measure investors sentiment and market risk. The VIX soared to its highest levels ever in March when it traded above 80.1
By mid-summer the index had fallen as low as the mid 20’s while trading as high as the mid 30’s through the fall, including spiking above 40 twice, most recently
during the weeks preceding the presidential election. On November 27th, the VIX was trading at 20.84, down over 44% on the month and not all that far removed from its historical average of 20.2 It has bounced back slightly to 21.67 as of December 7th. Despite the sharp turn downward, the VIX has remained elevated above that historical average for over 200 straight sessions dating back to February 24th and is significantly elevated from the start of the calendar year where it traded as low as 12.3
The VIX tends to fall as markets rise. Levels above 30 are typically correlated with increased levels of investor fear along with more volatile and uncertain markets. Levels below 20 tend to manifest more stable and certain market conditions along with reduced levels of investor fear.