The VIX has been relatively flat since the beginning of the year and is currently at one of the lowest values since the outbreak of the pandemic.
Following an unusual election, to say the least, the United States is welcoming today their new President, Joe Biden. As the inauguration of the Democratic candidate is taking place in a very specific time of an ongoing pandemic and political tensions, we decided to look at the VIX.
The VIX has been in the spotlight since the outbreak of the pandemic, as equities have witnessed significant volatility in 2020. Also known as the fear index, VIX is calculated based on the S&P 500 options and reflects market expectations on (implied) volatility in the coming 30 days. Unlike classic indices, VIX’s growth represents negative sentiment or increased risk of market volatility. VIX levels over 30 could be considered risky as the market is expecting high volatility.
The main US equity indices observed an almost uninterrupted rally from its March lows and have closed a turbulent 2020 on all time highs, with Nasdaq100 leading the gainers with an increase of more than 40%. Meanwhile S&P has observed a solid increase of 16% in 2020.
Performance of VIX Since the Beginning of 2020
Source: Bloomberg, InterCapital Research
Since, the S&P and VIX are negatively related, 2020 market conditions have led to a surge in the VIX index. It is worth noting that VIX was last time seen at the levels observed this year during the financial crisis in 2008. In March 2020 VIX observed two sharp daily increases. The first one was on 12 March, which coincided with President Trump introducing the European travel ban. Meanwhile, on 16 March the index reached 82.69, which is the highest value since the CBOE (Chicago Board Options Exchange) introduced the new methodology for the index in 2003.
As visible from the graph below, not so long ago VIX reached as high as 40.28, days before the US elections, and has since than been gradually declining. Since than Joe Biden has been elected as the 46th president of United States while Pfizer and Moderna have shown positive vaccine development. As visible from the graph, the VIX has been relatively flat (mid 20s) since the beginning of the year and is currently at one of the lowest values since the outbreak of the pandemic (23.24).