As we near Labor Day weekend, the typical summer doldrum has been anything but typical: NBA and NHL playoffs in August on TV and summer vacations in the backyard instead of the Hamptons for stock and bond traders.
Normally, the markets plod along in August, waiting for Labor Day and the return of vacationers back to work. The summer of 2020 continues to see markets drive higher while the economy plods along, waiting for another stimulus package to help struggling small businesses.
The average S&P 500 return in August over the past 15 years has been -.17 percent. In 2020, the S&P 500 return through Aug. 25 is 5.13 percent. Historically, volatility accompanies the meager market returns during the month of August. The chart below reflects that current one-month realized market volatility is 10.2 percent. With the current economic circumstances and global macro environment, the current level of volatility is historically mild.
S&P rolling one-month realized volatility
We are just a few months removed from volatility being at all-time highs, and as the markets have recovered, volatility has receded. The most widely known measure of implied volatility is the CBOE Volatility Index (VIX).
The VIX is a measure of the market’s expectation of future volatility. Year-to-date volatility remains higher than normal as measured by the VIX Index, however, well off the high set on March 20. Risks remain in the economy and the market with the global pandemic, upcoming presidential election, trade tensions and geopolitical tensions.
The market feels complacent and continues to shake off these risk factors. Oil price and interest rate volatility have disappeared for the time being, largely in part to government intervention. The Federal Reserve stimulus programs will remain in effect through 2020, and we believe that Congress will pass an additional relief package before year’s end. Multiple vaccines are in human trials, and we continue to see additional monies flow into vaccine candidates.
So, what can we learn from all this? Accurately predicting the next market move and timing the market is extremely difficult and can adversely affect the long-term performance of your portfolio. Riding out future market volatility in addition to having a diversified portfolio means staying the course.
This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. Kestra IS and Kestra AS are not affiliated with CD Wealth Management.