Monday morning while getting ready for work I overhead the comment, “the S&P 500 has not had a losing December since 2007”. This comment was interesting to me because I would have assumed either 2008 or 2012 would have been down years for the stock market in December. In the case of 2008 I assumed the market was down in December just because it was 2008. This time last year we almost went over the fiscal cliff so I thought that December would have been a losing month. Well I was wrong on both accounts. The last year the S&P 500 was lower in December was in fact 2007. The numbers that prove this are in the table below.
So of course when I think S&P 500, I think VIX. It’s what I do. I took a look at what VIX has done for each December since 2007. One of the reasons I thought the S&P 500 was down in December 2012 was that VIX moved up due to uncertainty around news coming out of Washington, DC. It turns out the S&P 500 had a small gain that month. Since VIX typically moves in the opposite direction of the S&P 500 so, I decided to check what VIX has done for the past six years. Those numbers show up in the table below.
My memory served me correct and VIX was up for the month of December last year based on the dreaded fiscal cliff scenario. This was one of those cases where VIX rose when the S&P 500 dropped, but also rose due to some uncertainty. The uncertainty passed pretty quickly and VIX actually closed at 14.68, down 3.34 on the first trading day of 2013 as the disaster scenario was averted and the stock market rebounded.
Out of curiosity I took things a bit further and checked the VIX futures markets in December for the past six years. The most appropriate contract for this study was the January future and it would be the future you would most likely take a position in with an outlook lasting the whole month of December. The outcome was pretty similar to the index changes with a bit of an exception. The price changes for the January future appears below and an explanation follows. The January contract was lower for each December except in 2012. Holding on for an extra day into the first day of 2013 would have resulted in a much lower January VIX future as it mirrored the first day performance of the index and closed at 15.60. However, the study is “what happens in December” so the number is positive. Also note that despite the S&P 500 dropping in 2007, the January future dropped slightly as well.
So there is one more market I wanted to check out that relates to volatility. The iPath S&P 500 VIX Short Term Futures ETN (VXX – 46.85) is the main method that many traders use to gain exposure to volatility. VXX started trading in early 2009, but the performance is based on an index that tracks the performance of holding a weighted portfolio of the two front month VIX futures contracts. It turns out that index has been calculated going back to 2006. To get an idea of what VXX has (or would have done) in December for the last six years I used the index data for 2007 and 2008. From 2009 to 2012 the actual performance of VXX is used in the table below. Also, for uniformity sake, I’m just showing the percent change of either the index or VXX for each December period.
As would be expected VXX was down when VIX and VIX futures were lower and VXX was up when VIX and VIX futures were higher. Also, like VIX and the futures VXX was down significantly the first day of 2013 and was lower than the November close on the first day of 2013.
So 2007 was the last losing month for the S&P 500, but despite that 2012 was not a losing month for VIX, VIX futures, or VXX. Keep in mind that those three instruments have an emotional and anticipatory element to their performance. Also keep in mind the next government hurdle is anticipated to occur in January. As for me, that just means December which is usually a month of relative market calm, may keep my interest as it did in 2012.