The so-called fear index shows that investors are feeling content right now, but volatility could be coming as markets roll into 2017.
The CBOE Volatility Index (.VIX), fell below 11.5 Tuesday to its lowest level since Dec. 8, coming within half a point of the year's low at 11.02. Meanwhile, stocks continued their rally Tuesday, with the Dow Jones industrial average and Nasdaq composite setting record closes.
"Everything about it is telling me people are kind of apathetic about what's going to happen for the rest of the year," said JJ Kinahan, chief strategist at TD Ameritrade.
"Next week, you may see people suddenly starting to hedge themselves," he said, noting concern about the strong dollar's impact on U.S. earnings. "The real question starts to become, as we get closer to earnings, [do] people start to hedge themselves for an overall market sell-off?"
Typically, a low VIX signals a market that's comfortable with current levels. But as 2016 winds down, some analysts say the low levels in the VIX and improved outlook on growth potentially set the market up for disappointment — and greater volatility ahead.