For the first time since early autumn the equity markets saw a fair bit of turbulence this week. The VIX, or volatility index, surged to 28 Wednesday, nearly doubling by the end of the trading session. This massive spike has been attributed to the announcement of the Federal Reserve’s slightly more hawkish policy plans and resulted in about a 3% drop in the S&P 500. Today we just wanted to share a couple of thoughts about what happens during these types of market events.
If we look back to the last time the VIX spiked in a similar fashion earlier this year, the catalyst was the unwinding of the Japanese yen carry trade. Looking back further to March of last year, the VIX made a similar move, with analysts citing recession fears over financial contagion risk. Finally, toward the end of summer in 2022, there was overwhelming panic over inflation and a string of unfavorable CPI numbers that sent the VIX up over 35. For some extra context, the S&P 500 is up about 60% since those inflation fears two years ago.
The point is, until there is evidence of a meaningful change in the underlying trend, we expect these market events to occur regardless of how unexpected they seem at the time. It is important to look at each event with a broader view and decide whether it is time to act or time to hold steady and let the market do what it does best.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.