The big news this week, of course, was the election. As always, the uncertainty it brought stirred things up in the financial markets, a trend we can see clearly in this week’s featured chart.
At the top of the chart, we have the S&P 500 stock index, and at the bottom, the VIX, which tracks market volatility. As a reminder, these two tend to move in opposite directions—when the VIX spikes, it signals increased fear, which usually leads to weaker stock returns and vice versa.
Now up until mid-July of this year, the VIX was relatively calm. But as the election approached, we saw four separate spikes in volatility, resulting in a period of bumpy returns for the S&P 500.
Now that the election is behind us, however, the VIX has dropped significantly. The market clearly likes it when uncertainty is resolved, as the S&P 500 has launched higher.
The bottom line? Falling volatility is usually a good thing for investor confidence. And as long as volatility continues to ease, it should remain a positive tailwind for stocks.
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.
The S&P 500 Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.