So much for the old-saying, “Sell in May and go away”. Had you sold the S&P 500 index at the end of April, you’d be wearing a loss of 2.4% as the market trades at record highs. And as Memorial Day sets off the summer vacation season in the United States, volatility appears conspicuous by its absence. Ahead of the long weekend the CBOE Volatility Index (VIX) stands at 12.13. During each of the past two years, implied volatility ended the summer higher than its end of May reading. So, should investors be worried about 2015? Not if the same pattern that occurred in 2009 and 2010 occurs. In each of those years, market volatility rose in May only to subside through September albeit at lofty mid-20-levels.
However, those years represented the flailing aftermath of the financial crisis, which continued to rage until 2011 as the Greek issue exploded on the scene. So what is there to worry about this year? IB Traders’ Insight contributor Russ Koesterich of Blackrock wrote an excellent column last week in which he mulled the question, What a Rate Hike May Mean for Stocks. Russ created an excellent chart to display the 3, 6-and 12-month impact on returns of the S&P 500 index following the onset of monetary tightening cycles since 1994. Here’s a small clue – the first three months are rough!!
Chart – Volatility since 2004