Investor confidence seems to be rebounding, indicating that the worst of the U.S. recession may be over, indicated by the low levels of the VIX and the exchange traded notes (ETNs) that track them.
The CBOE Volatility Index, or the VIX, which is calculated from Standard & Poor’s index options, tracks the market’s volatility over the next 30 days. It’s at the lowest level since right before the collapse of Lehman Brothers, states Rodrigo Campos of Reuters.
The probability of an economic recovery has been strengthened by stabilization of key economic indicators such as payrolls, home prices, bond yields, consumer confidence. Additionally, the Obama administration’s plan to revamp the economy is shedding extra light on the chances of an economic recovery.
Although the aforementioned is all fine and dandy, we are still far from being in the clear.
One of the kings of all economic indicators, consumer confidence, is still unstable. Confidence among U.S. consumers slipped in June to 49.3 from a revised 54.8 in May and a far cry from the 55.3 forecast by economists. Additionally, the job market is still not looking too pretty. Companies continue to lay off workers and unemployment rates continue to increase.
Some ETNs to take a look when watching the VIX are the following:
- iPath S&P 500 VIX Short-Term Futures ETN (VXX)
- iPath S&P 500 VIX Mid-Term Futures ETN (VXZ)
Remember that if you do consider VIX ETNs, it is imperative to completely understand how they work. They don’t track the VIX, they track a basket of volatility futures and produce a negative return where the yield on the cash for the futures softens the blow.
For more stories on the VIX and market volatility, visit our VIX category.
Kevin Grewal contributed to this article.