The Bull Case on a 400-Point Plunge: VIX Tame as U.S. Losses Ebb

  • Big moves happen reasonably often on the year's first day
  • U.S. stocks fared better than most benchmarks around the world

A plunge in Chinese stocks caught U.S. investors off guard Monday, jolting them into the New Year after the worst annual drop since 2008. Declines reached as much as 2.7 percent in the Standard & Poor’s 500 Index and 467 points on the Dow Jones Industrial Average.

Even as the closing loss of 1.5 percent ranked as the sixth-worst to start a year since 1932, not everything that happened was evidence of panic. Here’s a few ways of looking on the bright side.

1) Day One Lurch

While the S&P 500’s retreat would’ve been worse than about 95 percent of days in 2015, it’s less surprising when compared with how the benchmark gauge usually fares on the first session of any given year. Since 1932, the index has moved an average 1.1 percent in either direction on opening day, compared with an average daily move of 0.77 percent on all other days.

2) VIX moves on par with similar days

As stocks slid, one measure of volatility kept its relative cool. The Chicago Board Options Exchange Volatility Index, the gauge of options prices known as the VIX, jumped 14 percent to 21, not far from the average jump of 11 percent that occurs on days in which the S&P 500 loses at least 1.5 percent. That compares with one-day surges in the index of as much as 46 percent in August and 24 percent in October 2014.

3) Best of the Worst

Next to its peers around the world, the S&P 500 managed a relatively calm reaction to the day’s events. A 7 percent decline in the CSI 300 Index of large-capitalization companies listed in Shanghai and Shenzhen presaged losses around the world including a 4.3 percent drop in German stocks and a 3.1 percent loss in the Euro Stoxx 50 Index. All were larger than those in the U.S. benchmark.

4) It could have been worse

At one point losses in the Dow were big enough to qualify as the worst start to a year since 1932, but it didn’t end that way. Thanks to an end-of-day rally of more than 150 points, the 30-stock measure closed with a drop of 1.6 percent. It fell 2.1 percent as recently as Dec. 18.

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