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Market Volatility Could Support Market Movement in 2018

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Market volatility in 2017

Market volatility plays an important role in the market movement. The market and volatility usually move in opposite directions. The CBOE Volatility Index (or VIX), which measures the market volatility, fell 14.6% in 2017. The index is also known as the “fear index.”

The broader market S&P 500 Index (SPX-INDEX) (SPY) rose 19.5% in 2017, while the VIX Index fell 14.6%. It shows their inverse relationship. In past events like during the British referendum in June 2016, the global growth slowdown in early 2016, and China’s (FXI) (YINN) currency devaluation in August 2015, volatility spiked at a higher rate. The market fell during these events.

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In 2017, the market volatility remained at a lower level. It also hit a record low of $8.56 on November 24, 2017. In 3Q17, many hedge fund managers took a long position in the VIX Index with the expectation of a potential market drop due to rising geopolitical uncertainty between North Korea and the US (QQQ).

2018 outlook

Since an inverse relationship exists between market volatility and market movement, lower volatility in 2018 could help the market movement. If the Volatility Index shows any sudden improvement, investors should be careful about the market movement at that time.

In the next part of this series, we’ll analyze how the US Treasury performed in 2017.

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