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We at The Motley Fool don't pay much attention to the day-to-day movements of anything, but something caught my attention yesterday as particularly abrupt: The VIX, a measure of market volatility, jumped 27%. This was the 10th-highest daily climb in the past six years -- a period that includes the pants-wetting days of the 2008-2009 financial crisis.
In other words, markets panicked yesterday.
Yet as crazy as yesterday's jump was, the VIX is still fairly low, historically speaking:
Source: Yahoo! Finance.
Since the VIX began in 1990, the average reading is 20.4. After yesterday's surge, it closed at 20.8. It’s weird when something can surge by more than a quarter and still be about average.
This simply shows that investors were fairly complacent up until yesterday, ignoring the odds of something bad happening -- oil shocks, Middle East uprisings, that kind of stuff. Complacency breeds stupidity. Stupidity breeds losses. Sure enough, companies like Citigroup (NYSE: C ) , Yahoo! (Nasdaq: YHOO ) , and Southwest Airlines (NYSE: LUV ) fell between 4% and 5% on either no news, or what should have been unsurprising news. Hewlett-Packard (NYSE: HPQ ) fell more than 12% after hours after beating earnings expectations.
Yes, oil prices surged yesterday. Yes, there's uncertainty in the Middle East. But these things happen all the time, several times a year. When markets capitulate on news that shouldn't be terribly surprising, it's a good indicator that the rally which brought the VIX to its complacent levels probably went too far.
What's it mean going forward? Who knows? The VIX is actually a poor indicator of future returns. It tells you what just happened, not what's about to happen next.
What do you think might happen next? Sound off in the comments section below.