This is what I took away from today’s morning briefing, which you can subscription To be delivered to your inbox every morning with:
The S&P 500 (^GSPC) rose 2.3% on Thursday, marking the index’s biggest daily gain so far in 2024.
Just three days ago, the S&P 500 posted its biggest daily loss of 2024.
Volatility in markets has been rising since mid-July, with the Chicago Board Options Exchange Volatility Index (^VIX) rising sharply from the teens to above 65 at one point on Monday.
But as our chart for this week shows, the volatility coming into the markets has less to do with the direction of the market than with the size of the moves.
As DataTrek’s Nicholas Colas wrote this week, high levels of volatility typically mean damage to one- to three-month returns. That means the general association between volatility and “downside” isn’t entirely wrong.
But while the market is unpredictable in the short term, it becomes especially unpredictable when things are most volatile. As Colas joked, who would have guessed that initial jobless claims, of all things, would be the biggest day of the year?
The approach of the best and worst days on the calendar points to the advice that Steve Sosnick, chief strategist at Interactive Brokers, gave Julie Hyman in her column earlier this week — that investors should seriously consider doing nothing.
The lesson that big gains and big losses can go hand in hand may be hard to swallow, but it’s everywhere. And after this week, it’s hard not to think about the 2024 outlook update due in May from Bank of Montreal chief investment strategist Brian Belsky.
In one of the biggest hits on Wall Street at the time — a year-end price target for the S&P 500 of 5,600 — the bullish note pointed relentlessly to the possibility of a big decline in the coming months, simply based on the fact that in most bull markets, the average second-year decline is 9.4%.
With Monday’s drop taking it 8.5% below its recent high, Belsky’s call appears to have been vindicated. Part one, anyway.
But you can’t have one without the other. Colas points out the old adage that “volatility is the price you pay for stock market returns.”
In other words, tolerance for volatility is What is the purpose of money?.
Ethan Wolfman He is a senior editor at Yahoo Finance, and runs the newsletter. You can follow him on X @E Wolfman.
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