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Where May Equities Go From Here?

Mar. 02, 2018 3:05 AM ET3 Comments
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S&P Dow Jones Indices

By Jodie Gunzberg

February ended the longest historical monthly winning streak of 15 months for the S&P 500 that lost 3.7%. On a total return basis for the month, 10 of 11 sectors lost, which has only happened in 12 of 342 months, or 3.5% of the time (all 11 lost together in 13 months for a total of 25, or 7.3%, of months where 10 or 11 lost together). Energy lost 10.8%, the most of any sector. It was the 10th worst month on record for energy since October 1989, and its worst month since September 2011. Rising inventories and concerns on Chinese demand put pressure on the sector, especially on the smaller companies that may be less hedged. Only information technology was barely positive, up 0.1%.

Source: S&P Dow Jones Indices

The biggest story in February besides the correction itself may have been volatility that almost tripled. The annualized 30-day volatility rose from 8.1% on January 31, 2018, to 22.5% on February 28, 2018, and is the highest since February 19, 2016. To put it in perspective, the average going back to February 12, 1988, is 15.2%, and the volatility has only been greater than 22.5%, the current level, 12.5% of the time.

Source: S&P Dow Jones Indices. The upper right chart is since February 19, 2016, the last time volatility was as high as on February 28, 2018.

While volatility has increased in many down markets, it may not be a bad thing and can provide some trading opportunities. However, at this point, there may be some warning signs, particularly from the S&P 500 Bond Index, the corporate bonds of the companies in the S&P 500. These bonds say a lot about the financial health of the companies in the S&P 500, since the performance (or conversely yields) of the bonds

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