Earnings season often brings volatility spike

Market volatility has fallen to notably low levels, but earning season could soon change all that. Over the past 10 years, the emergence of first-quarter earnings reports has generally corresponded with a rise in volatility.

In the four weeks preceding Q1 earnings season, the CBOE Volatility Index has tended to fall 4.7 percent.

Meanwhile, during earnings season — here defined as the period between JPMorgan's report and the date four weeks hence — the VIX has risen an average of 4.9 percent.

Median readings show a similar divergence; the VIX's median performance in the pre-earnings period is a 4.4 percent drop, while its subsequent median move is a 1.3 percent rise.

VIX before Q1 earnings
VIX during Q1 earnings
2016 -0.47% (so far) ???
2015 -12.71% 1.32%
2014 -4.43% -24.13%
2013 6.73% 4.39%
2012 35.11% 1.74%
2011 -42.45% 0.18%
2010 -7.81% 63.69%
2009 -18.06% -12.35%
2008 -31.20% -13.98%
2007 1.89% 8.70%
2006 0.98% 43.64%
2005 20.34% -19.44%

Some examples are especially dramatic. The VIX jumped 44 percent amid Q1 earnings in 2006, and 64 percent in 2010. Meanwhile, the VIX has never risen more than 35 percent in the parallel pre-earnings period.

The divergence in pre-earnings and post-earnings volatility may well come down to coincidence. After all, earnings are not the only thing that drive the markets and the VIX.

But at the very least, investors should avoid being lulled into a state of ease by the VIX's low levels. As recent market history shows, that can change on a dime as companies release their reports.

This year around, the meat of earnings season is slated to begin on April 13, when JPMorgan unveils its report.

Meanwhile, analysts are none too excited about what they are about to hear. Earnings are expected to slide 9.1 percent for Q1, which would mark the fourth straight quarter of year-over-year declines, according to FactSet.


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Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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