The end of low volatility

There is more than a little uncertainty about the direction of the stock market today, last week's tumultuous trading sessions adding to the unease felt by those who are long equities.

Looking back over the last two years, the recent lack of "excitement" in equity markets is clear to see in the chart below, a development that probably lulled many investors to sleep over the summer, some surely believing what they desperately wanted to believe - that both stocks and the economy had made speedy recoveries from the events of a year ago.
By at least one measure, Friday's big move down made October the most volatile month of trading for the Dow Jones Industrial Average since early in the spring and, with consumer confidence now fading (along with consumer spending), the prospect of a 10.0 percent reading for U.S. unemployment coming this Friday looms large for investors who have loaded up on shares since the March bottom.

The sharp increase in the much-watched VIX, properly known as the Chicago Board Options Exchange Volatility Index, is not a good sign. It surged nearly 25 percent on Friday, from 24.76 to 30.69, its biggest gain in over a year and now at its highest level since early-July, as investors bought "insurance" against their long stock positions in the form of options.

The stock market sure isn't dull anymore.