One way we measure equity market performance is to compare the performance of stocks to volatility. Simply, we create a ratio of the S&P 500 over the VIX. The basic concept here is that when risk adjusted performance is rising, investors are getting adequately compensated for equity risk, and when the ratio is falling, investors are not getting adequately compensated for risk. With the recent outbreak of volatility, the risk adjusted S&P 500 is net down over the last three years.
In the chart below, we show the S&P 500 and then the S&P 5000/VIX. As can be seen, risk adjusted performance bottomed at the November 2008 low and then had a big run into July 2011. Then stocks corrected into October 2011 and rallied into April 2012. In April 2012, the indexed ratio of the S&P 500/VIX peaked at roughly 81. As of yesterday's close, the indexed ratio of the S&P 500/VIX is 67. The risk adjusted performance of stocks is net down since April 2011.