Wall Street's 'fear index' plummets after French election

Key Points
  • A classic "risk-on" rally shaping up on Wall Street this week as the VIX plummets by more than 20 percent after the French election.
  • The S&P 500 gains nearly 4 percent during weeks when the VIX tanks by a similar magnitude, according to Kensho.
  • Bank stocks should lead the way, according to the study. Dollar and gold should fall.
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Traders cheered the results of the French election as it removed a high-risk event from the global markets' calendar that had been worrying them for months.

Monday and this week are shaping up to be a classic "risk-on" rally, as they say on Wall Street, as the CBOE Volatility Index, a measure of investor fear, plummeted in early morning trading.

The was down more than 3 points, or 23 percent, in early trading Monday, on pace for its biggest drop since November.

If history is any guide, the rally this week may have another 2 percent to go for the with bank stocks leading the way.

CNBC, using Kensho, looked at what happened to financial markets when the VIX collapses by 20 percent or more over a week.

Stocks are the big winners during risk-on rallies with the Nasdaq leading the way. Bonds and the dollar are the worst performers as investors dump the safe haven assets. Gold underperforms.

Here are the kinds of stocks that do well during a risk-on rally.

— CNBC's parent NBCUniversal is a minority investor in Kensho.