Volatility ETFs Slide, VIX Drops Below 14 After Employment Report

January 4th at 11:37am by John Spence

The CBOE Volatility Index dropped below 14 on Friday for the first time since October as VIX-futures products such as iPath S&P 500 VIX Short Term Futures ETN (NYSEArca: VXX) lingered near all-time lows.

Wall Street’s so-called fear gauge was lower while the major U.S. stock indices were little changed after the government said the economy added 155,000 jobs in December.

“It’s not an incredibly strongly labor market but it’s mending and it’s going to continue to take time,” Greg Woodard, a strategist at Manning & Napier, told Bloomberg News. “The market realized there’s some outside help. The Fed continues to provide a lot of liquidity.”

VXX was down 1.5% in midday trading Friday while other volatility-linked exchange traded products such as VelocityShares VIX Short-Term ETN (NYSEArca: VIIX), VelocityShares Daily 2x VIX Short-Term ETN (NYSEArca: TVIX), ProShares Ultra VIX Short-Term Futures (NYSEArca: UVXY) and ProShares VIX Short-Term Futures ETF (NYSEArca: VIXY) were also in the red. [Volatility-Linked ETFs Still Crashing with VIX on Fiscal Cliff Deal]

Friday’s jobs report showed the unemployment rate was unchanged at 7.8% last month.

“The stubbornly high unemployment rate was unlikely to make the Federal Reserve rethink its easy-money policies, which have been propping up the recovery. Indications that the Fed could change its easy stance on asset purchases erased gains in stocks on Thursday and pushed benchmark Treasury yields to eight-month highs,” according to a Reuters article Friday.

“When it comes to Fed policy, this report should keep (it) steady,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets, in the report.

Volatility ETFs fell sharply in 2012 on a declining VIX and rising stocks. For example, VXX shed 77.6% last year, according to Morningstar.

iPath S&P 500 VIX Short Term Futures ETN

vix-etf-vxx

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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