Here’s Why The VIX Has Been So Low For So Long (VXX)

Share This Article
December 1, 2017 6:13am NYSE:VXX

From Bryce Coward, CFA: The drop in the VIX to ultra-low levels in 2017 has been a point of consternation for market participants and largely misunderstood.

Some market participants view the low level of the VIX as an indication of excessively positive sentiment among investors and thus a contrary indicator for the general direction of stock prices. But, the level of the VIX has to be framed in the context of other variables that affect it, including the prospects for global growth and liquidity conditions.

For example, since the beginning of 2016 the Markit World Manufacturing PMI has moved up from 50 to a reading of 53.5, which is the highest level of this indicator going back to the early acceleration phase of the recovery. As the first chart below shows, the VIX has a strong negative correlation with this metric for global growth.

Additionally, the VIX has a strong negative correlation with measures of liquidity, such as the spread between BAA corporate bonds and that of the 10-year US Treasury bond, as shown in the second chart below. Corporate spreads have been falling since early 2016 and are now at a level consistent with that of the 2005-2007 period. Global growth hitting on all cylinders for the first time in seven years and liquidity conditions improving — thanks in no small part to central banks maintaining easy monetary policy – go a long way in explaining the historically low level of the VIX. Unless or until those dynamics change, we should expect more of the same from the VIX in 2018.

Sign up for reports from Knowledge Leaders Capital

The iPath S&P 500 VIX Short Term Futures TM ETN (VXX) rose $0.72 (+2.25%) in premarket trading Friday. Year-to-date, VXX has declined -68.67%, versus a 19.65% rise in the benchmark S&P 500 index during the same period.

VXX currently has an ETF Daily News SMART Grade of F (Strong Sell), and is ranked #7 of 12 ETFs in the Volatility ETFs category.

This article is brought to you courtesy of Knowledge Leaders Capital.

9 "Must Own" Growth Stocks For 2019

Read Next

Get Free Updates

Join over 50,000 investors who get the latest news from!

Most Popular

Explore More from

Free Daily Newsletter

Get daily ETF insights from our market experts. Never miss another important market development again! respects your privacy.

Best ETFs

We've rated and ranked nearly 2,000 ETFs and ETNs using our proprietary SMART Grade system.

View Top Rated ETFs

Best Categories

We've ranked dozens of ETF categories based on relative performance.

Best ETF Categories