Last week, the Chicago Board Options Exchange’s volatility index, or VIX, dropped 39% — its biggest one-week retreat ever — after lawmakers and the White House reached a hard-fought deal to avert the billions of dollars in tax increases and spending cuts that had been set to hit the economy on Jan. 1.
The VIX tends to move inversely to the broader equity market, which jumped in the wake of the fiscal-cliff-averting deal that raises income-tax rates on couples with annual income of more than $450,000 but halted broader tax hikes, extends tax cuts for lower-income Americans and postpones automatic spending cuts until March 1.
That deal — while sufficient to have ushered in a global equity-market rally — set the stage for a battle on Capitol Hill over raising the debt limit, which legally hit its ceiling on Dec. 31. The Treasury Department by mid-February may not be able to continue financing the government.
Via – MarketWatch