Perhaps the Market’s Worries Have Melted Away

The market’s jitters took a nosedive late last week, despite more worrying headlines. The fear factor is abating, but it still doesn’t mean the wild roller coaster ride is over yet.  “We have already had a few years with volatility being very subdued, and thus we have been due for some normalized market movement,” said Brian Stutland of Equity Armor Investments. “In a sense, we are back to normal.”

After the panicky highs the CBOE Volatility Index hit on Oct. 15, that measure of expected market moves (which largely measures the expected likelihood of a major decline) has plunged 46 percent. Indeed, as the S&P 500 has bounced back from its lows, the market’s fear gauge dropped nearly 25 percent in the last week alone.

“We did see a rapid rise, but what’s more unusual is how quickly the VIX collapsed,” said Tim Edwards, director of index investment strategy at S&P Dow Jones Indices. “Normally it spikes up and grinds down, so it is genuinely unusual how quickly it’s decayed.”  The VIX is still well above multiyear lows hit in June, yet many analysts say much of the volatility has been drained from the market. As a result, the VIX’s plunge suggests the panic is largely gone.


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