Is higher volatility here to stay?
As the market has risen over the past five years, the CBOE Volatility Index has averaged a reading of 17.5, which is below its classical average of 20. That means that expected market volatility has been lower than its historical norm—a normal condition when markets are on the upswing. And while there have been several recent spikes above the widely watched 20 number, few have lasted as long as the current period of higher expected volatility.
While the VIX has fallen over the past week, it is spending its 18th straight session above the 20 mark on Wednesday. That's the longest the VIX has stuck above 20 since summer 2012.
And after a prolonged period of depressed volatility, many options experts don't see the VIX falling back to its lows anytime soon.
"The market is moving enough to support the volatility," pointed out Stacey Gilbert, head of derivative strategy at Susquehanna, in a Tuesday "Trading Nation" segment. "Until we get to a period where we don't move for a while, that implied volatility will stay higher."
More generally, "traumatic events require a period of recovery before normalcy returns," Jim Strugger of MKM Partners wrote in a Wednesday note. After the swift August selloff, the "emotional aftermath for U.S. equities is reflected via the length of the period that spot VIX and the futures curve remain elevated and distorted."
"No matter the outcome of the FOMC meeting tomorrow, U.S. equity volatility is likely to be higher in the short term," Strugger wrote.