Markets Get Weirder With Stocks and Volatility Tumbling Together
- VIX drop may not signal stock bottom, but calmer days ahead
- Volatility has never fallen so fast even as stocks tumble
The stock market and volatility are in the midst of an unprecedented synchronized swoon.
The S&P 500 Index has fallen more than 7% over the past two sessions while the Cboe Volatility Index, a measure of how much that benchmark gauge is expected to move over the next 30 days, tumbled by more than 10 points. Before this, there had never been a combination of a two-day equity drop of at least 5% and a VIX retreat of at least 5 points.
The dual declines could be a function of a market normalizing after high-profile blowups of short volatility bets, less demand to roll hedges after a major option expiry, or simple exhaustion. Record-setting levels of market fear aren’t easily sustained, and the drop in volatility expectations signals the most frenzied days of selling may be behind us.