Weekly Market Update - May 22

By Ryan Gilmer, CFA, CMT Chief Investment Officer

May 22, 2020

We hope you are well and ready to enjoy a beautiful holiday weekend. After declining last week, the S&P 500 increased this week and continues to trade inside a range of 2850-3000.

We think the following chart from JPMorgan Research shows some interesting information. The chart shows both the major declines in the S&P 500 since the financial crisis in 2008, as well as the Volatility Index level (VIX). These charts are inversely correlated: the VIX increases when the S&P 500 decreases, and vice versa.

Here are some additional observations from this chart:

  • Corrections are common – This is the 7th decline of greater than 10%, not including a 9.9% decline in 2012. Even in strong bull markets, declines happen frequently.

  • Losses can cluster – In the 2-year period from 2010-2012, we had three meaningful corrections, followed by a fairly calm period from 2013 through the summer of 2015. Volatility re-emerged in the second half of 2015 and early 2016, before strong performance through early 2018. After that period, we’ve had three more significant downturns. If history is a guide, we may see positive returns over the next few years.

  • New highs are probable – Risk means never knowing for certain what is going to happen in the future. Also, risks differ depending on the time frame. Currently, the markets have been volatile and may be at risk of another short-term decrease. But, the fact is that all of the prior corrections went on to resolve to new highs. While it may take some time for that to happen, we think chances are good that we’ll see new highs over the next few years.

Please reach out to your advisor if you have questions regarding your accounts or would like to discuss this further.

Keywords: covid19
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