Despite the headwinds expected in 2023, this year has been great for the stock market, with the S&P 500 posting a year-to-date return of 14.28%.¹ Still, there were a number of events that could have derailed the stock market this year, from the U.S. regional banking crisis in March to the debt ceiling dispute that was settled in June. Despite all this, there was no significant increase in volatility as the VIX index did not rise above 27.² In this article, I will compare the trajectory of the VIX index in 2023 with its average and examine its monthly seasonal patterns.

The VIX Index

The VIX index, also known as the fear gauge, is one of the most widely used measures of stock market volatility. VIX is the ticker for the CBOE Volatility Index and is a calculation that provides a measure of the constant, 30-day expected volatility of the U.S. stock market, derived from real-time, mid-quote prices of S&P 500® Index (SPX℠) call and put options.³

That is, the VIX measures expected volatility over the next 30 days. However, it is important to emphasize that the VIX is presented in annualized terms. Since the VIX is currently at 18, this means that market participants expect a movement of 5.2% (up or down) in the next 30 days, with a probability of 68% (one standard deviation):

The VIX Index: 2023 vs. Average

So far in 2023, there have been a number of events that could have driven volatility higher. First, the Federal Reserve, the ECB and the BoE continue their monetary policy tightening campaign, which began in 2022. In March, the world experienced a flashback to the Global Financial Crisis with the regional banking crisis in the US. Then in May and early June, the U.S. debt ceiling made headlines. More recently, in August, Fitch shook the markets with its downgrade of the U.S. debt rating to AA + from AAA.

Despite all those negative events, volatility has been consistent with the average so far in 2023. As we can see from the chart below, apart from the heightened values at the start of the year and the spike in March, the VIX Index in 2023 has been in line with the average and even below during June and August.