- The S&P 500 Index generated its first negative total return in February since October 2016 as the equity and credit markets saw volatility bounce again.2 Returns on investment grade and high yield corporate bonds were also negative for the month, with high yield bonds experiencing their worst monthly performance since January 2016.3,6
- Following strong performances in January, markets largely pulled back as investors weighed the potential for a quicker pace of interest rate hikes by the FOMC amid signs of improved U.S. economic growth and renewed inflationary pressure.
- In mid-February, the CBOE Volatility Index (VIX), which measures investor expectations of near-term volatility, reached 37, its highest point since September 2011.12 The index later declined from its mid-month peak, but generally remained elevated, averaging approximately 22 for the entire month of February.12
- Despite the recent uptick in market volatility, 2018 has perhaps presented a more typical market environment than last year. For example, 2017 generally provided investors with strong market returns amid historically low levels of volatility.
- As the chart highlights, volatility can spike quickly and without notice. Given recent conditions, it may be wise for investors to proactively prepare for further volatility before it arrives.
1 Federal Reserve Bank of St. Louis, 10-year yield, http://bit.ly/29ecBfp.
2 Federal Reserve Bank of St. Louis, S&P 500, http://bit.ly/2d3pN5b.
3 ICE BofAML U.S. High Yield Master II Index.
4 Thomson Reuters Lipper.
5 Credit Suisse Leveraged Loan Index.
6 ICE BofAML U.S. Corporate Master Index.
7 U.S. Federal Reserve, http://bit.ly/2FA2csz.
8 Bloomberg, https://bloom.bg/2t5pwvL.
9 Bureau of Economic Analysis, http://bit.ly/2H08DES.
10 U.S. Department of Labor, http://bit.ly/298eR69.
11 Econoday, http://bit.ly/1iJOdAP.
12 CBOE Volatility Index, based on data from January 1990 through March 2018.
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