- November’s VIX decline aligns with historical seasonal stability.
- December’s unexpected volatility spike broke last year’s pattern.
- Investors are urged to remain flexible amid evolving market dynamics.
One of the most famous indicators of the market volatility is VIX, and this index has shown rather interesting behavior in the recent months, similar to the indications of the same time last year. Despite that, in December, the actual and expected volatility increased almost contrary to the pattern, which attracted attention of observers and analysts.
Volatility Trends Show Familiar Patterns
According to the past data on VIX, November has never been a volatile month because it marks the decreasing level of volatility. Similarly, this year, the index has been trending down through the month and down significantly. This drop was consistent with previous months that Citi observed in November 2023 and it showed such a pattern might be typical of markets to calm down towards the end of the year.
The effects we have seen may be a result of holiday season impacts, lower trading activity, and increasing visibility into economic fundamentals as the year goes on. Experts argue that low premiums in November are likely to bring stable equity markets, while investors tend to stay in a watchful mode before year-end.
December’s Volatility Spike Deviates From the Norm
But something completely opposite happened in December 2024 which did not happen last year. Again, while December 2023 kept the volatility level low, VIX registered a sharp rise. The underlying cause of such surprising volatility is not fully understood. Still, some analysts have linked the vulnerability to increasing geopolitical tensions, outperforming indicators or results, or changes in forward guidance by the FED.
As this deviation clearly illustrates, financial markets have always been volatile and thus highly unpredictable; proceeding with whatever might have worked before might not be a solution when new parameters are brought into the mix by changing world dynamics. The sharp rise in stock prices should be seen as a warning that the fluctuations are an inseparable part of the markets they bare in times of ensured instability.
The difference in December volatility gives investors a new set of lessons to follow. Based on past experience, business entities generally expect situations to continue growing in the same direction; however, such a change indicates the need to stay alert and vigilant to new trends.
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