The VIX fell to a new 2025 low this week, but remains similarly aligned to its average position at this point through the year.
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Market volatility fell to the lowest level this year on Wednesday. The CBOE SPX Volatility Index VIX dropped to an intraday low below 14.50, a level not seen since December 2024. This follows a large channel lower in the VIX since it spiked to a high above 60 back in April. Looking toward the ½-point chart, we can see that yesterday’s move breaks a spread -septuple bottom. The VIX reached 15 on six previous occasions but did not move lower, four times in January to February, then two more times over the past month before Wednesday’s low.
Just last week, we discussed how August opened up with a 21% “spike” in the VIX, after the S&P 500 Index SPX dropped about 2% on the first day of the month. As that piece highlighted, it is normal to see a slight increase in volatility after such a prolonged period of calm. We did not see a single day in July where the S&P 500 moved 1% in value, up or down. Then August opened and we got back-to-back 1%+ days. Those two days taken in solidarity could be viewed as a sign of concern (as most news headlines would lead you to believe). However, when viewed in conjunction with the lack of movement over the prior 30 days, they don’t seem so bad. Fast forward 10-days and we are back at lows for the VIX.
The recent action is interesting when viewed alongside historical average VIX readings at this point in the year. The graph below shows three lines:
- Red Line: year-to-date movement for the VIX
- Blue Line: average VIX level based on annual trading days
- Yellow Line: average VIX level based on annual trading days only in the first year of a president’s term
As you can see in the graph, the yellow lines and blue lines track one another well. If you look closely, you can generally see the first few months of a president’s term show slightly higher than average volatility (yellow line above blue). That switches after the 100 days mark to lower-than-average volatility (blue line above yellow). You can also see that both lines move lower in unison, heading from day 50 into the summer, then pick up from about day 150 into day 200. While the changes are small, the directional theme makes sense.
This year seemed unique at the beginning but has settled back toward the historical averages. We opened the year around the 15 level, spiked to the upper 20s, fell back to the upper-teens, then jumped up above 50 in April (based on EOD values only). From there, we came right back down to the historical averages by around day 80.
The current value is slightly lower than the historical average at this point in the year. We are also getting close to the time of year when the average VIX level begins to creep back up above 20. As the old adage goes, history rarely repeats itself, but it often rhymes. This could be a good opportunity to do some back-to-school cleaning of the portfolio, or potentially look toward cheap hedging options like we discussed on Tuesday.
