- The recent downturn and presumed recession have been characterized by extreme volatility across credit, equity and commodity markets. In March, much of the volatility was to the downside, while activity thus far in April has seen a partial recovery along with a notable decline in the CBOE Volatility Index (VIX) from its historic high on March 16.
- Recent market momentum has led some investors to ask whether the S&P reached a bottom in late March. While it is not possible to call a market bottom, or top, until months after the fact, it is instructive to look at how markets have behaved through the past several recessions.
- From this perspective, it seems likely that no matter the market’s direction in the next 1, 6 or 12 months, volatility is likely to remain with us for some time. The chart shows the VIX during the current bear market and each of the past three recessions.1
- While the volatility of the current bear market is unprecedented compared to past recessions, it also shows that further bouts of volatility reemerged, often several times over the course of months, after the VIX initially peaked in each of the previous three recessions.1
- Against this backdrop, investors would be wise to prepare for additional periods of volatility, particularly given that markets have digested only a small fraction of the difficult economic news that likely lies ahead.
1 Federal Reserve Bank of St. Louis, as of April 9, 2020. Based on the CBOE Volatility Index (VIX) level (indexed to 100) during the past three recessions. 1990–1991 refers to June 1990–March 1991. 2001 refers to March–November 2001. 2007–2009 refers to December 2007–June 2009. 2020 refers to February 3–April 8, 2020.
This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice, and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. FS Investments cannot be held responsible for any direct or incidental loss incurred as a result of any investor’s or other persons reliance on the opinions expressed herein. Investors should consult their tax and financial advisors for additional information concerning their specific situation.
Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.
All investing is subject to risk, including the possible loss of the money you invest.