The VIX has been top of mind for years . . initially for being boring, latterly for being anything but. We recently saw a chart that showed that the long term average for the Daily VIX between 1990 and 2018 has been 19.35, with a high of 80.86, reached on November 11, 2008 and a low of 9.14, reached on November 2, 2017. The anomaly of the last five years is revealed when we learn that the VIX was below average 100% of the time in 2017 and 91% of the time over the last five years. So low levels of volatility have become the new normal. In light of this it is clear that the rise in volatility earlier in the month – (which was the highest daily move (>100%) ever) was only taking the volatility back towards normal ranges, and not an anomalous move. Furthermore, with the exception of those hedge funds who were explicitly short the VIX, via a range of new-fangled instruments, few managers were bemoaning the return of volatility.
The other source of panic was the extent of the pullback in the S&P 500, which entered “correction” territory when it fell by over 10% in a five day period. A long term study has shown that since 1930 the S&P 500 has on average pulled back 5% 3 times in a year, 10% once a year and 15$ once every two years. So the moves that we have recently witnessed are by no means unusual – they just seem rare as we are at the end of a multi-year bull market and near historic levels of low volatility. So maybe markets should welcome the return of some excitement. It is certainly not new territory.