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Historically, Volatility & CBOE VIX Index Begin to Pick Up in August

After seven full trading sessions, this August has been rather sanguine when compared to historical average performance for the full month. Major indexes continue to trade at or near new all-time highs and the VIX index has been drifting lower rather quietly. Historically, the VIX has typically hit its annual low sometime during the month of July. So far in 2021, the VIX’s closing low was on July 2 at 15.07. This VIX seasonal low can be seen in the chart above just ahead of a seasonal climb to a peak that has generally arrived sometime during the month of October before declining again as the typical fourth quarter rally gains traction. VIX’s spike in March of 2020 is also visible in the above chart, pushing the late Q1 peak higher.

Digging deeper into VIX’s historical tendencies in August we present the following table comparing the change in VIX in August to the performance of the S&P 500 in August since 1990. S&P 500 has been higher 54.8% of the time over the last 31 years, but its average performance in August has been a loss of 0.6%. VIX, as one would likely expect has risen 61.3% of the time in August with an average increase of 9.4%. Shaded in the table are the Augusts where VIX (on a closing basis) was up over double digits. Every double-digit VIX gain in August was accompanied by a S&P 500 loss averaging 5.8%.

With the exception of 1995, every double-digit VIX decline in August was accompanied by a S&P 500 gain. Single-digit VIX moves were generally not that well correlated with August’s S&P 500 performance. This is also not that surprising as the VIX is attempting to estimate expected volatility over the next 30 days from the time of each tick of the index. (https://www.cboe.com/tradable_products/vix/faqs/)

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