With all of the stress in the volatility markets over the last 24 hours, pricing in the VIX futures curve has really gotten wacky.  While spot VIX surged from under 20 to just about 50, the spikes in VIX futures were more contained (on a relative basis at least).  For example, the front month VIX futures contract didn’t even get above 30 in the last 24 hours while the futures contract three months out didn’t even get above 25.  The chart below shows spreads between the front-month and three-month VIX futures contracts going back to 2004.  As of yesterday’s close, the spread between the two contracts was over 7 handles indicating that the contract maturing in three months was trading 7 points lower than the front month future.

This wide of a disparity, which is called backwardation, is incredibly uncommon in the VIX futures curve.  Since 2004, there have only been two other periods where the spread between the two contracts was wider to the downside and those were during the financial crisis and when the US lost its AAA credit rating in 2011.  Those were two periods of major market stress!  Additionally, there have only been a handful of other occurrences where the three-month VIX futures contract was trading cheaper than the front-month contract.  Two of those occurrences were in 2007, and the other was in the summer of 2015 when China devalued the yuan.

The chart below of the S&P 500 shows every day since 2004 where the three-month VIX futures contract traded more than three points cheaper than the front-month contract.  Looking back at each of those prior periods, all but one proved to be a decent buying opportunity (late 2007) for anyone willing to hang in for a bit.

The S&P 500 fell 4.1% today for its first 4%+ drop since August 18th, 2011.  There have been 144 prior one-day drops of 4%+ for the S&P, and on average the index has gained 0.32% on the next trading day.  We’ll see how that stat holds up tomorrow!

Below is a look at the performance of various asset classes using key ETFs tracked in our Trend Analyzer tool.  For each ETF, we highlight its total return today, its total return since the 1/26 peak for the S&P 500, and its total return year-to-date so far in 2018.

Things were looking pretty good for global stock markets up until about a week ago, but as you can see, most areas of the equity asset class are now down on the year.  That’s an amazing turnaround in a very short period of time.  In fact, since 1/26, the only ETF in our Matrix that has seen a positive return is short-term Treasuries (SHY).

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