The S&P 500 finished the week up just over 2% and the NASDAQ-100 led the charge by running up 3.66% on the week. Volatility indexes, which were uncharacteristically mirroring their underlying markets for most of the week diverged and finished the week lower as would be expected. However, the extent of the drop is not much to write about. A 5.58% drop in VIX and 5.30% drop in VXN is not much of a reaction considering how much the equity markets rallied last week. Of course both are already at fairly low levels so there is not much more to drop.
The futures markets were lower, but did not exactly drop like a stone. Also, the steepness of the curves, especially the VIX curve, indicates that the volatility market expects a shoe to drop in the next few months. The perplexing part is not if, but when will we have our next volatility ‘event’. Despite low VIX, if history is any indication, the timing of a volatility event is not if it will happen, but when will it happen.