The stock market has been moving higher on almost any good news so there is little reason to add to this euphoria; however, it is worth tracking some characteristics that risk and sentiment. The VIX is following expect after a shock; a slow decay to normal. We are not there yet, but the processing is occurring even with rising uncertainty concerning the November election.
What is driving the decline in VIX is a decline in economic uncertainty as measured by the news aggregation from the index created by the academics of the Economic Policy Uncertainty website. They have increased their offerings of indices to include an equity market uncertainty index that is focused on news related to the stock market. It is scaled to the VIX and uses economic, market, and volatility counts in major newspapers. A comparison with the VIX shows that there are uncertainty news spikes correlated with the VIX. These spikes are usually short-lived with longer VIX decay.
The recent economic uncertainty index spike was stronger and longer lasting than usually. The index decay suggests that there should be a corresponding decline in market option volatility as seen in the VIX. As long as the uncertainty is declining, the VIX should follow the same pattern.
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