October wrapped up in quiet fashion, and now the focus is on important political and economic events in early November. The S&P 500 was down roughly 1.5% last month, but the average daily moves were rather small at just 7.2 points, compared to average daily moves of 12.9 points during the first nine months of the year. Although actual market volatility seems low with choppy action in the S&P 500, some measures of volatility from the options market are ticking higher amid the growing election and economic uncertainties.
What’s With the VIX?
The CBOE Volatility Index (VIX) was ticking higher last week. The market’s so-called “fear gauge” had recaptured the 16 level Friday afternoon after the S&P 500 suffered a four-day losing skid (all numbers updated through midday, Friday, October 28). VIX, which tracks the expected or implied volatility priced into a strip of short-term options on the S&P 500 Index (SPX), had added more than three points, or 25%, in just four days.
For the month, VIX gained 22.8%, and it wasn’t alone in moving higher. See the table below for a summary of other CBOE volatility indexes. For instance, implied volatility on options on the Dow Jones Industrials, or VXD, was up more than 20%, and the gold volatility index (GVZ) jumped 21.5%. Beyond that, however, the VIX-like indexes tell a mixed tale. Most barometers of U.S. equity market volatility are higher, but oil (OVX) and Brazil (VXEWZ) moved lower in October. Emerging markets (VXEEM) and China (VXFXI) are only modestly higher.
|S&P 500 Volatility||VIX||22.8%||-10.4|
|NASDAQ 100 Volatility||VXN||16.1%||-8.7%|
|Russell Small-Cap Volatility||RVX||15.1%||2.2%|
|Emerging Markets Volatility||VXEEM||4.7%||1.1%|
|Euro Currency Volatility||EVZ||5.6%||-16.2%|
|Treasury Bond Volatility ||TYVIX||-4.4%||-8.9%|
TABLE 1: VIX AND OTHER CBOE VOLATILITY INDEXES. October performance of VIX-like indexes. All numbers updated through midday Friday, October 28. Data source: CBOE. For illustrative purposes only. Past performance does not guarantee future results.
Bonds … Treasury Bonds
It’s also interesting to note that Treasury bond volatility, as measured by TYVIX, dipped in October to a new 52-week low, as shown in figure 2. At its low, TYVIX’s value was nearly half the level set this summer when Treasuries were jolted by signals of reduced monetary stimulus from the Federal Reserve—the return of the so-called “taper tantrum.” But, wait—aren’t Fed officials expected to raise rates before year-end? There seems to be relatively little anxiety priced into Treasury bonds as TYVIX sits at anemic levels.
Last week, I noted that VIX tends to increase two weeks ahead of U.S. presidential elections and decline two weeks after. The scenario seems to be playing out as the volatility index finished Friday at the highs of the week. Because volatility indexes in other asset classes (such as oil, emerging markets, and U.S. Treasury bonds) aren’t yet keeping pace with VIX, this seems to suggest that the recent uptick in anxiety isn’t so much related to global macro concerns or interest rate policy, but rather the uncertainty about elections. But that might very well change after November 8, when the focus shifts beyond the election to other investor concerns like the future direction of interest rates.
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