The iPath S&P 500 VIX Short-Term Futures ETN (NYSEArca: VXX) and other volatility-linked exchange traded products tumbled Friday on strong employment data that buoyed sentiment on the economy. SPDR S&P 500 (NYSEArca: SPY) climbed 1% in early trade as its tracking index traded above an important psychological level.
The Labor Department said the U.S. economy created 165,000 jobs last month, more than expected. The unemployment rate fell to 7.5%, the lowest since December 2008.
“This shows the job market and the economy in general appear to be more resilient than investors had feared,” said Joe Manimbo, a market analyst at Western Union Business Solutions, in a Reuters report.
The employment report surprise rippled across global markets and ETFs. In stocks, the S&P 500 traded above 1,600 for the first time.
The iShares 20+ Year Treasury Bond Fund (NYSEArca: TLT) dropped 1.5% as U.S. government debt yields jumped, suggesting investors were moving away from safe havens. In currency markets, the yen weakened against the dollar with CurrencyShares Japanese Yen Trust (NYSEArca: FXY) off 1.2%.
Next page: Why VIX ETFs can fall even more
In volatility ETFs, VXX slipped 2.5% and ProShares Ultra VIX Short-Term Futures ETF (NYSEArca: UVXY) dropped 5%. The products are designed to replicate the performance of futures based on the CBOE Volatility Index, Wall Street’s fear gauge.
Technical analyst Tarquin Coe at Investors Intelligence says VIX ETFs can fall further.
“The S&P 500 is at record highs and yet there is room for complacency. The VIX is above the level of its March low,” Coe wrote in a newsletter Friday.
Momentum indicators suggest the VIX is not oversold, he added.
“Consequently, the VIX has ample room to go south, a move which would coincide with equity indexes pushing higher,” the analyst said. “Our advisor sentiment survey this week also reveals a lack of excessive optimism. Major tops need a sentiment extreme and that is just not yet apparent.”
Full disclosure: Tom Lydon’s clients own SPY and TLT.