• The U.S. equity market has been remarkably resilient since the volatility of Q4 2018. Stocks benefited recently from a host of better-than-expected economic releases, including strong consumer sentiment and jobs data, improving manufacturing numbers and a spike in housing starts since January.
  • The stock market’s rise over the past several months also has come with minimal daily volatility, as the chart shows. Since mid-October 2019, the S&P 500 has risen approximately 11%, but experienced only five daily moves greater than 1%.1 (The five days that did see 1%-plus daily moves were clustered in a brief late January-early February swoon).
  • Despite the recent upbeat economic news, however, investors may be shrugging off a host of potential threats that could drive volatility higher once again. Several current risks include high and rising equity valuations, souring earnings projections, decelerating economic growth in Germany and Japan and the still-to-be-determined economic impact of COVID-19.2
  • The Treasury market appears to be accounting for these risks while the equity markets may not be. The 10-year Treasury yield has fallen approximately 45 bps in 2020, for example, while the 2Y-10Y yield curve has flattened significantly.
  • Despite the range of potential warning signs, the U.S. equity market could of course continue its torrid pace for the foreseeable future. With markets still riding high, however, now may also be a good time for prudent investors to consider preparing their portfolios for a potential pullback.

1 Bloomberg Finance, L.P. Data refers to an extended period of minimal daily volatility (October 14, 2019–February 20, 2020).
2 Federal Reserve, http://bit.ly/38LKqjQ.


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