Market Insights: VIX - From One Extreme to the Other

Milestone Wealth Management Ltd. - Apr 18, 2025

Macroeconomic and Market Developments: 

  • North American markets fluctuated this week. In Canada, the S&P/TSX Composite Index rose 5.12%. In the U.S., the Dow Jones Industrial Average was down 1.14% and the S&P 500 Index was up 0.28%. 
  • The Canadian dollar was stationary this week, closing at 72.22 cents vs 72.0 cents last week. 
  • Oil prices rose this week. U.S. West Texas crude closed at US$64.29 vs US$61.54 last week. 
  • The price of gold looks great, closing at US$3,335 vs US$3,249 last week. 
  • Retail sales surged 1.4% in March, the strongest monthly gain in over two years, and well above expectations. Auto sales jumped 5.3%, building materials rose 3.3%, and restaurants & bars posted their biggest increase since 2022. Core sales (excluding autos, building materials, and gas) rose 0.6%. Year-over-year, retail sales are up 4.6%, reinforcing the consumer's role as a key support for the U.S. economy amid growing trade and inflation concerns. 
  • The Trump administration is eyeing tariffs on pharmaceutical imports to reduce America’s heavy reliance on Chinese and Indian drug supply chains. A report by Exiger flagged serious risks, including contamination, forced labor, and poor manufacturing standards—citing that 75% of U.S. essential medicines are imported, with over 500 generics dependent on Chinese active ingredients. 
  • Canada’s annual inflation slowed to 2.3% in March, surprising markets and easing from 2.6% the prior month, driven by falling gasoline and travel costs. Core inflation remained elevated (median at 2.9%, trim at 2.8%), leaving the Bank of Canada in a bind as tariffs add both inflationary pressure and downside risk to growth. 
  • Amid escalating trade tensions with the U.S., Chinese refiners slashed American oil imports by 90% and are now importing record volumes of Canadian crude — 7.3 million barrels in March alone — thanks to expanded TMX pipeline capacity. The shift underscores Canada’s growing role as a strategic energy supplier to Asia.   
  • CPP Investments has sold 25 private equity fund interests—comprised of older North American and European buyout funds—to Ares Management and CVC Secondary Partners for $1.2 billion in net proceeds. The sale is part of CPP’s broader strategy to actively manage and rebalance its portfolio, shedding funds over 10 years old. As of December 31, 2024, CPP's net assets stood at $699.6 billion. 

 

Weekly Diversion: 

Check out this video: Steph Curry’s Magic 

Charts of the Week: 

The CBOE Volatility Index (VIX), often dubbed the "fear gauge" of Wall Street, has recently demonstrated just how dramatically market sentiment can shift in a short span. In early April, the VIX moved from a relatively calm 21.5 to a staggering 60+ in just a few trading days, driven by escalating trade tensions and market uncertainty. This five-day jump of over 30 points marked the second-largest five-day increase in the index’s history. However, the volatility did not persist at these elevated levels: within the following week, the VIX experienced a rapid reversal, falling by 23.6 points by mid-day trading and 22.2 points by market close on Tuesday the 15th - becoming the second-largest five-day decline ever recorded. 

These sharp movements are rare. Only twice before—during the financial crisis in November 2008 and the COVID-19 market shock in March 2020—has the VIX seen a five-day drop of at least 20 points, as shown in the chart below. 

Source: Bespoke Post  

However, when we observe occurrences with less dramatic 5-day point declines in the VIX, we get significantly more data as the charts below demonstrate. 


Source: Bespoke Post 

Source: Bespoke Post 

As we can see, the data reveals interesting information: 

  • Short-Term Uncertainty: After a large VIX drop, S&P 500 returns over the following week and month are mixed. For the five cases where the VIX fell more than 15 points, median returns for the next week and month were negative, at -3.5% and -2.7%, respectively. 
  • Long-Term Recovery: Over six months to a year, however, the S&P 500 tended to recover strongly. In every instance where the VIX dropped more than 15 points, the index was higher a year later, with median gains of 18%. 
  • Below 200-Day Moving Average: When the S&P 500 was below its 200-day moving average at the time of the VIX drop, like we saw on April 15th, forward returns were generally better than average, especially over longer horizons, with median gains a year later up 19.3%. 

While extreme volatility spikes and subsequent rapid declines can create short-term uncertainty and choppy markets, they often set the stage for stronger-than-average returns over the following year. The VIX’s recent journey from one extreme to the other is a reminder of the market’s emotional swings. History shows that while the path can be turbulent, periods following extreme volatility often lead to above-average long-term market gains.  

Sources: yahoo finance, First Trust, Financial Post, Fox Business, Reuters, Bespoke Investment Group 

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