Morning Notes — Volatility Unwind

The March 16 Fed rate hike acted as a clearing event to gradually unwind the uncertainty discount preceding liftoff. The S&P 500 has recovered about half of its pre-liftoff drawdown and realized equity volatility has come off its peak. Realized volatility as measured by the VIX Index has descended from 31.7 on March 14 to 22.2 today. Elevated volatility is a strong headwind for equity markets and it usually takes a few months for volatility to recede.  VIX levels north of 20 are generally associated with elevated volatility. The VIX broke above 20 on January 5th and enough time has now passed to expect an eventual normalization in realized volatility.