Note from dshort : I've updated these charts through the yesterday's close, with the VIX at 15.28. This time last year (August 8, 2022) the VIX hit an interim high of 48.00.

Let's review the recent volatility, or absence thereof) in the S&P 500. The first chart below features an overlay of the index and the CBOE Volatility Index (VIX) since 2007. The current levels of this index are well below the 20 level, a traditional traditionally associated with increased market risk. A recent WSJ article summarizes the usual interpretation of this indicator.

While a VIX reading above 30 suggests high anxiety and a jump above 40 indicates panic, a reading below 20 indicates a level of comfort.

As the chart above illustrates, the correlation between the S&P 500 and the VIX is inverse but imperfectly so. The lower low in the summer of 2008, when the index nearly dipped to 1200, came with a lower VIX in the upper 20s. More significantly, the unprecedented surges in the VIX above 80 in late 2008 predated the actual index low by over three months.

A key to understanding the VIX is to realize that it can be far more volatile than the index to which it is attached. The next chart inverts the VIX values, which helps us see more clearly the greater degree volatility and the fact that the VIX tends to lead the S&P 500.

The VIX at the current levels suggests that the mood of the market is siesta mode -- quite different from this time last year. In fact, the 15.28 of yesterday's close is a level that the index hasn't consistently held since the early summer of 2007. Here is a longer-term look at the S&P 500 and VIX that gives us a better sense of how this indicator has behaved.

The question, of course, is how long this siesta will last.

Note: For anyone needing a VIX refresher, Investopedia provides a handy overview:

VIX : The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge"…. VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.