A December (&Year) To Remember

"It’s (supposedly) the most wonderful time of the year
With the S&P 500® up about 25% (YTD as of 12/6/2019)
And Trudeau caught on hot mics

It’s the most wonderful time of the year
It’s the hap-happiest season of all

With those holiday greetings (you're not spending 2%) and the happy (Doral>Camp David) meetings
When G7/NATO "friends" may come to call
It’s the hap-happiest season of all

There’ll be judicial hearings for hosting Cable news outlets for roasting And grandstanding on Capitol Hill

There’ll be scary tariff stories
And tales of the glories of
Elections long, long ago …"

All kidding aside, with about three weeks remaining, it’s been a fairly wonderful year for the S&P 500®. The large cap index is higher by about 25%. If the year ended today (12/6), this would be the best annual performance for the S&P 500® since 2013 (+29.6%) and the third best since 2000. The data below is through midday December 6.

Inside Volatility Trading 12-10
Source: S&P Dow Jones Indices

More recently, S&P® 500 realized volatility (10- & 30-day) measured at more than two-year lows. One has to go back to October 2017 for realized volatility levels below where they were in mid-to-late November. There’s typically a relationship between historical and expected volatility in the broad market. As such, it’s not surprising that the VIX® Index measured 11.54 on November 26. That same day, 30-day HV in S&P® 500 dropped to 5.70%.

Inside Volatility Trading 12-10 1
Source: Bloomberg

The November 26 VIX® Index reading (11.54) was the lowest since August 9, 2018.

Inside Volatility Trading 12-10 2
Source: Bloomberg

There are usually 252 trading days in a calendar year. Over the past decade, on average, there have been 52.8 moves of +/-1% (close over close) in the S&P® 500 per annum. Through December 6, there have been 38 in 2019. So over the past decade, on average, there’s a 1% S&P® 500 move roughly once every five trading days. The chart below lays out the data.

Inside Volatility Trading 12-10 3
Sources: Bloomberg and Cboe Global Markets

The last 1% move in the S&P® 500 occurred on October 15. The last 1% decline in the Index was October 8. There have been 41 trading days since the last 1% drawdown (close/close) in the S&P® 500. There were two other stretches in early- and mid-2019 that ended after 41 day "droughts." In fairness, there was a stretch between late 2017 and early 2018 where the S&P® 500 didn’t decline by 1% for 112 straight sessions.

This visual comes from Macro Charts and runs through December 4.

Inside Volatility Trading 12-10 4
Looking out to 2020, much of the chatter around the markets is in some way tethered to the electoral calendar. Most market participants are at least aware of, if not positioning in advance of the February 3, 2020 Iowa caucuses. New Hampshire (2/11), Nevada (2/22) and South Carolina (2/29) will go to the polls shortly thereafter.

March 3, 2020 is the “Super Tuesday,” when 14 states as well as American Samoa will hold primaries or caucus. The full presidential election calendar is available here.

On December 9, the Cboe Futures Exchange (CFE®) listed September, October and November VIX futures that expire in 2020. Traditionally, the long-dated VIX® futures expire in roughly 9 months. End users of the VIX® suite of products have requested longer maturities in order to facilitate specific hedging or volatility linked trading into Q4 of next year.

The British pound (sterling) has rallied hard in advance of the December 12 general election. Polls have indicated that Boris Johnson’s Conservative Party is well-positioned relative to the Labour Party (Jeremy Corbyn), as both sides continue to grapple with the Brexit referendum from 3.5 years ago.

Moving on to some of the other global volatility Indexes, it’s interesting to note the nearly uniform collapse in vol measures relative to this time last year. With the exception of small increases in the Cboe/CBOT 10-year U.S. Treasury Note Volatility Index℠ as well as VVIX, all other measures are markedly lower. It’s also arguably worth noting that most of these indicators have been inching higher over the past week. U.S. stock index vols are green across the board. So too are single-stock and currency volatility measures. Commodities are mixed, as are global equity/ETF volatility gauges.

Inside Volatility Trading 12-10 5
Source: Cboe Global Markets

The S&P 500® Index is back within earshot of new all-time highs. Realized and forward-looking volatility measures are relatively low, but may have found a bottom in recent weeks. As with all things market and volatility related...time will tell.

Happy Holidays!


Vol 411 - 12-10

Video: Trading week off to a quiet start


Cboe Will Be Hosting:                                          
December 10, CAIA Options Event in Chicago, IL 

For questions or to provide feedback on the newsletter, please email Alexa Auerbach, Director of Product Marketing, at [email protected] 

To learn more about the VIX Index, visit www.cboe.com/vix.