Just because the VIX is under 11 there’s no reason to panic. Historically, a VIX reading under 11 has not preceded a market decline that’s according to a research note published by Goldman Sachs at the beginning of this week.

The note, which was written by Goldman analyst Krag Gregory Ph.D. notes that while a VIX reading below 11 is rare, median S&P 500 returns three months after the VIX drops below 11 are generally positive at 2.25% historically.

Also see:

GS: A VIX Below 11 Is A Reason To Celebrate Not Worry

The data used for Goldman’s analysis goes back to 1990 provides an interesting look at how volatility impacts market returns. According to the data, since 1990 a VIX drop below 11 is rare. Only 1.8% of VIX observations back to 1990 have dropped below 11 with less than 1% falling below last Friday’s closing level of 10.6.

However, based on the 26 years of VIX data, following a drop below 11 returns are generally positive in the following months. What’s more, the VIX tends to remain depressed.

Specifically, Goldman’s data shows that after a VIX decline below 11, median VIX levels over the next one-week, one-month and three-months were all fairly low at 11.1, 11.4 and 12.1, respectively. Median S&P 500 returns one-week, one-month and three-months after the VIX drops below 11 have been positive at 0.47%, 0.65% and 2.25%.

Hedge Fund Leverage Moving Higher

That being said, while median returns have been positive there have been some negative returns. The maximum S&P 500 loss one week after the VIX crossed below 11 was -2% (-3.7% after one month) — hardly an end of the world scenario.

S&P 500 returns:  Our results indicate that the VIX crossing below 11 tends to be a more meaningful signal about lower-than-usual future S&P 500 volatility rather than an impending market decline. Median S&P 500 returns one-week/one-month/threemonths after the VIX drops below 11 have been positive at 0.47%/0.65% and 2.25%, respectively. Returns were not always positive, the maximum S&P 500 loss one week after the VIX crossed below 11 was -2% (-3.7% after one month).”

The low for the VIX this year is 10.58. This depressed level is low compared to averages but not the lowest of all time. Since 1990 the lowest level printed for the VIX is 9.13. There have been nine other prints below 10. The average VIX reading over the 2 ½ decade period studied is 19.65 with a maximum of 80.86.


Looking for good small-cap stock ideas?

We asked ValueWalk’s most loyal readers what is their #1 goal.

Answer – small-cap investment ideas that are vetted and have liquidity, but not well covered.

Presenting ValueWalk’s exclusive quarterly magazine.

Across 25+ pages we detail actionable value investment ideas from qualified investors, with deep dives on at least four under the radar small-caps.

Take a look at and download this no obligation teaser. And if you want to buy the last issue, sign up for a whole year, or just find out more about what’s on offer, click here. One fund manager in the previous issue produced a return of 85% for his investors last year.