We have previously noted that VIX was, like today, in a period where it was sub 20 between 2003-07. Overall during this time, returns for SPX were mostly very good. However, VIX would occasionally jump 50-80% higher and $SPX would decline more than 5% over the next 1-4 months. We are potentially repeating this pattern now.
In the first chart below, we have updated the chart from 2003-07. The bottom panel shows VIX moves of greater that 30%, of which there were 9. In the top panel are corresponding moves in SPX. The percentage drop in SPX is noted in the text.
In the second chart, we have done the same analysis from 1992-97, also a period of low volatility. The conclusions are the same, with corresponding pullbacks of 5-10%.
2003-07: changes in SPX (top panel) corresponding to changes in VIX of more than 30%.
1992-97: changes in SPX (top panel) corresponding to changes in VIX of more than 30%. Note that there were 4 instances (out of 14) where SPX declined less than 4%.