In April, the VIX term structure came close to inverting, which can signal market expectations of increased volatility or a potential market downturn. This was observed as the market approached the end of April, suggesting heightened concerns about future market volatility.
In May, the VIX saw a significant rise, reaching levels not seen since the beginning of 2024. This surge in volatility was attributed to a variety of factors, including market uncertainty and anticipation of major events like the U.S. Consumer Price Index (CPI) and Federal Open Market Committee (FOMC) interest rate announcements. The increase in the VIX in May was interpreted by some as a sign of increased risk and uncertainty in the market.
In 2023, the VIX index experienced several notable movements and events. At the beginning of the year, the VIX collapsed by 15%, reflecting a significant decrease in implied volatility and investor concerns about risks such as China’s real estate bust, Europe’s energy crisis, and an aggressive Federal Reserve tightening cycle being overblown. This led to a unwinding of hedges and a fall in implied volatility.
The VIX also saw a significant rise in February 2023, reaching its highest level since early January. This was attributed to a variety of factors, including market uncertainty and anticipation of major events like the U.S. Consumer Price Index (CPI) and Federal Open Market Committee (FOMC) interest rate announcements.
Moreover, the introduction of the VIX1D index, designed to measure the expected volatility of the S&P 500 Index over the current trading day, added a new dimension to volatility trading. The VIX1D index rose 162.7% from May 13, 2022, to March 13, 2023, significantly outperforming the traditional VIX index, which rose by 38.8% in the same period.
The VIX index also played a role in signaling market sentiment and trends. For example, a breakdown in the VIX’s structure on October 13th was interpreted by some as marking the start of a new bull market. Despite “bumps on the road,” such as waves of selling and volatility spikes, the long-term structure of the VIX chart suggested that the bull market would continue to dominate in 2023.
Overall, the VIX index in 2023 reflected a complex interplay of market sentiment, economic indicators, and investor behavior. It experienced both significant falls and rises, indicating periods of both lower and higher expected volatility in the market.
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