Volatility: VIX Explodes
Written by: Global Thought Leadership
20 March, 2020
Source: Bloomberg, as of 3/18/20. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
The chart shows, from March 31, 2005 – March 18, 2020, the daily closing value of the VIX Index.
The Bottom Line
- Market volatility, as measured by the VIX, surged to an all-time record high of 82.69 on March 16th, breaking above the previous peak reached in October 2008.1
- This extreme coincided with the S&P 500 dropping from a record high on February 19th into bear market territory just 16 trading day later—the fastest 20%+ drop in its history.2 As of the close on March 18th, the S&P 500 was down 29.2% from that high3.
- New analysis from ClearBridge Investments posits the odds of a U.S. recession at 75%—with travel, restaurant and retail activity slowing toward standstills as social distancing policies are applied around the country.
- ClearBridge also notes that a strong fiscal policy response is likely to be the only way for the economy to avoid two negative quarters of growth—and help mitigate the severity of associated job losses.
- From a monetary policy standpoint, Western Asset believes the Fed’s dramatic action to take its target rate to zero demonstrates that it will use all tools at its disposal—aggressively as necessary—to address the economic fallout from COVID-19.
- While uncertainty and volatility are likely to remain in place for some time, the market has corrected so swiftly that it is possible we could be approaching the process of forming a bottom more swiftly as well.
- As ClearBridge noted, “we may be approaching levels that have historically signaled major market bottoms. In fact, the percentage of NYSE stocks closing above their 200-day moving average is below 5% and just above the all-time low seen in the depths of the global financial crisis.”
1 Source: Bloomberg, as of 3/18/2020. October 27, 2008 was the previous closing high for the VIX at a level of 80.06.
2 Source: Bloomberg and ClearBridge. The S&P 500 closed at a record high of 3,386.15 on 2/19/2020. On 3/12/2020 it closed at 2,480.64, a decline of 26.74%. ClearBridge notes this was the fastest drop from a peak into bear market (20%+ decline) territory in the history of the S&P 500.
3 Source: Bloomberg, as of 3/18/2020.
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a measure of market expectations of near-term volatility as conveyed by S&P 500 stock index option prices.
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