It’s pretty widely recognized that August and September tend to be weak months for the stock market traditionally. And we all know that when stocks are weak, the VIX tends to increase. Well, we survived August with very little volatility as the VIX is down 43.6% YoY. However, the latest global PMI data is suggesting that in the coming months or quarters volatility could increase once again.
In the two charts below we show the year-over-year change in the VIX compared to the Global Manufacturing PMI and the Global Services PMI. In each case, when the PMIs are declining, as they have been gradually doing for the last two years, the VIX usually is increasing on year-over-year basis (granted a lot of the time the year-over-year change in the VIX is getting less negative but that still means on the margin volatility is increasing). The subdued equity markets of late have sent the year-over-year change in the VIX to the most negative rate of change since 2012 while the PMI levels are currently barely above 50. This spread between the VIX and global PMIs seems most likely to be resolved by an increase in the VIX rather than an acceleration in the PMI data.
