Despite some interesting market movements last week VXN was down slightly. We can combine Friday’s market rebound from the latest one day crisis that occurred on Thursday along with INTC, EBAY, and GOOGL getting their earnings out of the way. I did notice that some big Nasdaq-100 components report next week (AAPL, AMGN, AMZN, and GOOGL) so I would have expected VXN to be a little bit higher going into those numbers, it could be VXN is telling us not to expect many fireworks over the rest of the second quarter earnings season – at least not from tech and biotech companies.
The Russell 2000 continues to underperform the S&P 500 in 2014 and RVX has been at quite a premium relative to VIX. Since RVX was already a bit elevated we didn’t see quite the move from small cap volatility as we did from VIX on Thursday. However RVX did tick up slightly on a week over week basis.
This past year the Russell 2000 has underperformed the S&P 500. This is normal, and a little expected, since there was some strong outperformance in 2013. I spend part of last week at Russell Investments in New York and while I was there on Wednesday the relative spread between RVX and VIX reached the highest level in over 8 years. The table below shows the spread as the difference between RVX and VIX divided by VIX. This spread hit over 71% Wednesday and then abruptly backed off on Thursday.
In the past when geopolitical risk pushes volatility higher it has resulted in VIX climbing faster than RVX (and VXN for that matter). The relative spread between RVX and VIX closed at 71.09% on Wednesday and quickly dropped to 43.05% as VIX climbed more dramatically than RVX as equity markets sold off. As the financial markets brushed off Thursday’s scare the spread widened back to 56.88% to finish the week. The history of the difference between RVX and VIX along with the relative performance of the S&P 500 and Russell 2000 (as measured by the Russell 2000 minus the S&P 500) shows up in the table below.
Finally on a week over week basis the curves didn’t do much at all. Wednesday was settlement for the July VXN and RVX contracts and now August is the front month.