That Big VIX Drop Isn’t Necessarily a Bullish Indicator

While last week’s VIX slide was one for the ages, it isn’t necessarily a bullish indicator for stocks in the days and weeks ahead.

The market’s so-called fear barometer fell 37% over the last five trading days through Friday’s close, the worst five-day slide since 1990. But drops of that magnitude historically have been followed by weaker-than-usual performances in the stock market.

In the nine previous instances in which the VIX fell by 30% or more over a five-day span, stocks have lagged their customary returns, Bespoke Investment Group says.

As the chart shows, the S&P 500 has averaged a 1.5% decline over the next week, Bespoke says. The index also averages a drop in the ensuing month and three-month time horizons.

Bespoke Investment Group

Over the next six months, the S&P 500 has averaged a 3% gain, below a 3.9% average return for all six-month periods since 1990.