Vix, (VXX) the CBOE’s volatility index has been dropping massively in the past week demonstrating the comfortable feeling among investors about the future of the market.The five year low was set in June 2007 when the volatility index stood at 14.62. The fact that the market is heading for such a low volatility number suggests a belief among investors in the economy’s recovery. Such a low may seem too early at this point. The Fed’s announcement and statement on the outlook of the economy, released earlier today, seems a much more measured approach. However after that announcement stocks climbed even higher.
The lower volatility in the market means a reduction in the cost of protection on S&P investments. As the S&P seems to have steadily increased in value since January some investors are worried that the lower VIX points not to a calm growing market but one caught up in the news of recovery. Some would say the low points to an almost disinterested complacency in the market rather than a truly recovering S&P. The important guide for investors of this ilk is not the volatility index itself. It is seen as a proxy indicator of the markets 30 expectations rather than truth. They
The Chicago Boards Options Exchange keeps track of the volatility in the market using Vix, ofter called a fear indicator in real time. It is measured on options pricing and the results show the way the market thinks the S&P 500 will head in the future. The number is usually used as a baromator or measurement of the mood of investors captured in real time. The overall positivity of the readings shows the market has a positive outlook on the future of the market. This view and reading is backed by th recent data that has been released showing the formerly sluggish US economy to be in recovery. The report on retail sales earlier today as well as the positive anticipation the market had of the FMOC’s rate decision and outlook today are the most recent pieces of data to come in a month that has seen many positive releases. If the Vix stays on the path it has been going down it may well stabilise at pre crisis levels, a situation that would be welcomed, and one that would point to a long awaited recovery in the American Economy.