"Buckle Up" - Low-Vol 2017 Means Bumpy Ride Ahead
2017 was one of the least volatile years for the S&P 500 Index in history.
With only eight 1% daily changes, not a single 3% pullback, and the lowest average CBOE Volatility Index (VIX) for a full year ever - 2017 will go down in tranquility history.
Which brings us to an important question: What does it mean for 2018?
Per John Lynch, Chief Investment Strategist,
“Historically, calm years like what we experienced last year have coincided with great bull markets, but history tells us to buckle up because the following year has tended to be a lot rockier. That isn’t a reason to panic though, as this may bring about opportunities for active investors.”
We looked at years with some of the smallest intra-year pullbacks ever and found that the average gain was nearly 26%. The next year, however, saw an average pullback of 12.1%, while the average number of 1% moves (closes either up or down 1%) spiked from under 13 to over 30. But the good news is the S&P 500 managed to gain a respectable 8.5% on average.
In other words, a continuation of the bull market is possible, but another steady move higher appears unlikely. Instead, we should be on the lookout for multiple dips and consider using those opportunities to add to equity positions during the year.