We are already half way done with 2016 and it appears what we thought going into the year is being confirmed by SPX implied volatility. If the Fall of 2015 there was lots of chatter about the equity markets in the US shifting from a low to a high volatility regime. The low volatility regime had been in place for several years and the first signal of a change came back in late August 2015 when VIX topped 50 intraday for the first time since the great financial crisis. I have two favorite charts that give a good long term perspective on VIX and couldn’t decide which one to use so I settled on both.
First, we have the high low range plus average by year for VIX going back to 1990. We have higher low and a higher average over the first six months of 2016. In fact on the far right side of the chart the VIX low and average have both been moving higher since 2014.
The second chart shows the 1 year, 5 year, and 10 year rolling moving average for VIX over the last 15 years or so. It’s hard to see, but I promise that the 1 year average is slightly higher than the 5 year average. The last time we had a cross over like this was in November 2007. I don’t think anyone needs a reminder where the equity markets went after that cross over.
So the consensus thinking was we were shifting into a higher volatility regime and it appears that the first half of 2016 has confirmed the mind of the market.