Last week the Russell 2000 managed to get back to green on the year which for those of you that don’t speak trader mean the index is now positive for 2014. That’s a bit of a positive for those with small cap exposure, but kind of tough when the S&P 500 is up over 9% and the Nasdaq-100 has gained almost 16% for the year. With the price rise, RVX dropped, but only by about 7% which was much less than VXN (11.82%) and VIX (12.91%) last week. The point here – the risk perception for small caps remains high relative to other market sectors.
VXN dropped based on a strong performance of the underlying market along with a big part of the third quarter earnings season being behind us. Despite the market’s strength, VXN is over 4 points higher than the 2014 low and less than a point below the 2014 closing average price.
The curves both steepened and showed more contango by the end of the week. Both front month futures are at a bit more of a premium than we are used to this year which can be taken as a little extra risk premium being price in the markets.