Stocks were under pressure last week, which was actually the second week of the biggest two week drop in broad based indexes since August 2011. Small cap stocks did hold up a bit better than large cap with the Russell 2000 (RUT) giving up 4.49% while the large cap focused Russell 1000 (RUI) lost 5.14%. Both are in the red for 2018 with RUT down 3.76% and RUI down 2.17%.
The relationship between the Cboe Russell 2000 Volatility Index (RVX) and VIX hit previously uncharted territory last week. Historically, with a couple of brief exceptions, RVX has closed at a premium to VIX. The times VIX has been at a premium to RVX the result is RVX at a slight discount. We are rewriting the record books as on Tuesday RVX was at a 20% discount to VIX. Both were elevated, as well all know, but the move in VIX to the upside greatly surpassed that of RVX with VIX remaining at a premium for the rest of the week.
For a longer term perspective on this relationship I updated the chart below which shows the High, Low, and Average RVX to VIX premium by year. The bar on the far left is what we have for 2018 so far. That’ll stand out for some time if we return to the historically normal relationship between RVX and VIX.