2016 was a year lots of people would like to forget for a variety of reasons. Personally, I had a great year and didn’t know any celebrities who will be celebrated posthumously at the various spring award shows. If we go back 52 weeks to MLK weekend in 2016 the markets were about as opposite as they could be relative to where we are today.
As a quick reminder, many market participants were nervous going into 2016, we had just experienced our first interest rate hike in years and the equity markets had been on a bullish run since the end of the Great Financial Crisis. The stock market was proving the bears right as the S&P 500 was down by 8% and VIX had risen to 27.02. Neither had put in their respective low and high for 2016 as there were a few more weeks to go before the S&P 500 bottomed and VIX peaked for the year. In present time the S&P 500 is up slightly and VIX has broken the 2016 closing low of 11.27 twice finishing last week at 11.23. If there is any doubt market expectations at this point in 2016 are a complete contrast with 2017 just note the VIX term structure comparison below.
The remaining 50 weeks of 2016 resulted in VIX putting in an average close lower than the previous year and the S&P 500 rebounding to record levels. It’s been a quiet first couple of weeks in 2017, however, a new sheriff is in town (Trump) in a few days and I have this funny feeling that the low volatility we’ve experienced for the first couple of weeks this year may not be here to stay.