The Only Thing We Have to Fear Is...

Franklin Delano Roosevelt’s 1933 Inaugural Address is an unassailable masterpiece of optimism. With the unemployment rate hovering around 23.5% and GDP declining by 12.9% year over year, FDR delivered an incandescent speech that inspired hope during the worst of the Depression.

By comparison, our current concerns seem downright pedestrian. At the moment, some of the things investors and traders have to fear include:

  • Inverted Yield Curve
  • Trade War with China
  • No-Deal Brexit
  • Eurozone Growth

The primary drivers of recent macro volatility have been abating of late. Consequently, the S&P 500® Index is within half of 1 percent of its all-time high, and the Cboe Volatility Index® (the VIX® index) has fallen below 14 (intraday) for the first time since August 1 (data as of September 12).

Inside Volatility Trading 9-18Source: Bloomberg

Global equity volatility measures have been declining in lockstep since their recent zenith on August 5. In the past handful of sessions, volatility measures have fallen fairly dramatically. Over the first weekend in August, the People’s Bank of China allowed the yuan fall to the weakest level (relative to the U.S. dollar) since early 2008.

During that session (August 5), the S&P 500 fell by 3%, the 10-year Treasury yield dipped by more than 12 basis points and the VIX Index climbed to 24.8 (highest level since early 2019). Over the past 5 1/2 weeks, there’s been a de-escalation of U.S.-Sino tensions.

Relative moves in various volatility indexes:

  • VIX Index from 24.81 to 13.85 (44.2%)
  • VIX9D from 29.15 to 12.50 (57.1%)
  • RVX from 26.89 to 17.80 (33.8%)
U.S. equities have certainly bucked the trend in September thus far. In the previous Volatility Newsletter, we referenced the fact that September has been the worst month for S&P 500 performance historically. Month to date (September 12), the S&P 500 is up just over 3%. The Russell 2000® Index (RUT) is higher by 5.4%. The iShares China Large-Cap ETF (FXI) has advanced 6.3% since the end of August.

The VIX futures term structure is back in contango as the September contract moves toward expiration (September 18). The futures curve looks much like it did on July 30, when the VIX Index ranged between 13 and 14 last. There is about a 1 vol premium across maturities when compared with late July.

VXFXI from 28.50 to 17.14 (39.9%)

Inside Volatility Trading 9-18 2
Source: LiveVol Pro

The Fed meets again this week and the market is pricing in a significant likelihood of another ¼-point cut (89%). Last week, the European Central Bank (ECB) reduced rates (to negative 0.5%) and relaunched its quantitative easing program. It signaled its intent to purchase 20 billion euros worth of assets (monthly) starting in November.

ECB President Mario Draghi said, “In view of the weakening economic outlook and the continued prominence of downside risk, governments with fiscal space should act in an effective and timely manner.” It is unlikely Draghi’s speech will ever be compared with FDR’s, but the more things change, the more they stay the same.

"Sometimes we live no particular way but our own." —Robert Hunter


Vol 411 9-18
Video- Spot $VIX spikes & $SPX drops following attacks on Saudi oil refinery over the weekend.


trader forum logo

Cboe Will Be Attending:
September 17, ALTSSEA in Seattle WA
September 26, Rosenblatt GELC in New York

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