The S&P 500 (SPX) is little changed year-to-date, but that doesn’t mean 2015 didn’t have its fair share of head-whipping action. More than a few bouts of stock volatility surfaced throughout the year. In particular, August’s China-triggered global equities retreat comes to mind. The summer doldrums had lulled much of Wall Street into complacency until a swift, virtually unwavering, one-month decline gripped the stock market before a rebound.
As stocks crumbled, the market’s chief mood marker, the CBOE Volatility Index (VIX), spiked to 53.29 on August 24 (figure 1). That marked the highest print for VIX, which tracks the implied volatility of short-term SPX options. And not just for 2015—it was also the most extreme reading since the 2007–08 global financial crisis.
A Liberal Dose of Volatility
Other measures of market volatility saw notable spikes in August as well. For instance, volatility on the Dow Jones Industrial Average, as measured by $VXD, was in the single digits in the summer, but saw a spike above 56 in late August. The table below shows that some extreme 2015 highs were also seen in the NASDAQ Composite, oil, emerging markets, and more.
|2015 High||2015 Low||YTD|
|CBOE Volatility Index (VIX)||53.29||10.88||-18.0%|
|NASDAQ 100 Volatility (VXN)||46.72||11.55||-9.3%|
|DJIA Volatility (VXD)||56.32||7.04||-5.9%|
|CBOE Russell 2000 Volatility (RVX)||46.66||14.06||-18.5%|
|CBOE Crude Oil Volatility (OVX)||74.29||28.81||-10.8%|
|CBOE Gold Volatility (GVZ)||25.73||8.61||-25.2%|
|CBOE Emerging Markets ETF Volatility (VXEEM)||111.39||15.84||-0.9%|
|CBOE Brazil ETF Volatility (VXEWZ)||62.10||24.56||21.0%|
|CBOE Euro Currency Volatility (EVZ)||18.52||8.80||0.2%|
|CBOE China ETF Volatility (VXFXI)||19.27||60.57||-1.0%|
|CBOE/CBOT 10-Year U.S. Treasury Volatility (TYVIX)||52.14||3.76||-13.5%|
Yet, despite some notable volatility spikes in the late summer, the S&P 500 is on track to finish 2015 flat. One reason it made little progress this year was the mixed performance of the market sectors that comprise the index. For example, although energy, basic materials, and utilities are under water year to date, some of those losses have been offset by strength in health care, consumer, and tech names.
And What for 2016?
Table 1’s revealing picture shows that nearly every measure of market volatility is lower today than it was 12 months ago. That is a potential indication that market participants are expecting or “pricing in” lower levels of volatility next year compared to 2015.
Maybe mixed trading will remain a dominant theme in 2016, pushing traders and investors into sector-by-sector stock-picking considering the age of the stock market’s broad bull run. Or, is there risk in potential complacency? August’s fast retreat for stocks and spike in volatility isn’t so far removed from our collective memories. Let’s see how the first part of the year shapes up—we may get a better idea of the rest.
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