The Year Volatility Died

When it comes to market volatility, how low is low?

Before 2017, a close below 10 in the Volatility Index (VIX) was an extremely a rare event. It had only happened 9 times since 1990 out of 6,804 trading days. This is equivalent to 1 day every 3 years, or 0.13% of the time.

Image of volatility index since 1900 to 2016

A handful of days in late December 1993, one day in January 1994, twice in November 2006, once in December 2006 and one more time in January 2007. After that, it would be over 10 years until the VIX would once again find itself below 10.

Which brings us to 2017: the year volatility died.

In 2017 alone, the Volatility Index has closed below 10 on 32 separate occasions or 16% of all days. In the table below of lowest VIX closes, the sea of yellow is all since May of this year.

Volatility index table closing below 10 since 1990 to 2017

In 2017, we have seen the following records in the VIX:

  • the lowest intraday level in history (8.84 on 7/26/17),
  • the lowest daily close (9.19 on 10/5/17),
  • the lowest weekly close (9.36 on 7/17/17), and
  • the lowest monthly close (9.51 on 9/29/17).

October is known as the most volatile month in markets.

Monthly average Volatility index from 1990 to 2017

Not this year. October 2017 is on pace to be the least volatile month in modern history (back to 1990).

Lowest average level volatility index from 1990 to 2017 list

Intraday volatility over the past month is also at a record low, with a 0.35% average range. Just 9 years ago, in October 2008, that same range was over 7% per day.

Image of S&P 500 average intraday range from 1970 to 2017

What does this tell us other than the obvious (volatility is extremely low)?

First, that records in markets are made to be broken. Just because you haven’t seen something before doesn’t mean it can’t happen. Given enough time, almost anything can and will happen. If you don’t believe me, see Exhibit A (negative interest rates across Europe)…

Negative interest rates across Europe 2 year yield chart

2017 also serves as a reminder that the future is unknown. Nobody was predicting this to be the least volatile year in modern history. They were predicting just the opposite, in fact, even after the year had already begun…

Volatile year for markets - 2017

I say modern history because if you go back in time there was actually one year with even lower volatility: 1964.

Lowest annualized volatility of S&P 500 in 1928 to 2017 image

This is interesting given the hindsight narratives attempting to explain this year’s low volatility, including “high-frequency trading” and the “passive/index boom.” Of course, neither of these were around circa 1964, making the explanations for today’s market harder to believe.

What was around, no different than today: bad news. In November 1963, J.F.K. was assassinated. In 1964, the Vietnam War escalated after authorization by Congress (Gulf of Tonkin Resolution), with 23,000 American troops by year-end (in 1965 this would jump to 184,000). It was also the year of the 1964 Civil Rights Act, with associated violence and riots.

Like 2017, any and all bad news was ignored by the markets in 1964. Why? Nobody truly knows. The markets are driven by psychology more than anything else, and the mass psychology at the time was that of a bull market (1962 – 1966). Which is to say that good news was bought and bad news was not sold, again and again in a powerful positive feedback loop.

Such sentiment doesn’t last forever, of course, as psychology is always changing. Volatility would eventually rise back then just as it will inevitably rise this time around. We just don’t know when it will happen or why it will happen. It could happen tomorrow or it could happen in two years – nobody really knows such things.

What we do know is that it’s probably not a good idea to assume that 2017 is a new paradigm, just as it was not a good idea in the midst of the financial crisis to assume every year would look like 2008. Taking an undue risk today is no better than hiding money under your mattress after 2008. Reactionary portfolio management would be just fine if the future always looked like the recent past. But that’s not the way it works in markets, where each time is different. And the more extreme the present environment, the more different the future will seem.


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This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.



Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts. He is the co-author of four award-winning research papers on market anomalies and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors and previously held positions as a Credit, Equity and Hedge Fund Analyst at billion dollar alternative investment firms.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. Charlie holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and also holds the Certified Public Accountant (CPA) certificate.

In 2017, Charlie was named the StockTwits Person of the Year. He is a frequent contributor to Yahoo Finance and has been interviewed on CNBC, Bloomberg, and Fox Business.

You can follow Charlie on twitter here.


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