Volatility – Friend or Foe?

Concluding the past month, it’s worth revisiting one of the most well-known phrases in conventional market wisdom. “Sell in May” is known by most investors, and used at times to explain market results, or non-results.

For those that actually know the numbers (empirical evidence), the month of May actually gets a pretty bad wrap, in terms of performance.  Historically speaking, it simply isn’t the worst month of the year for stock prices, especially in recent history (ask us for the minutia, if you are a data hog).  May has historically been as flat as a pancake for equity markets, so even a small gain - like we’ve seen this May has been welcomed by investors. This past vintage marked the 3rd consecutive month of gains for the S&P 500, with a gain of 1.50% for the month.   The TSX, after leading North American markets for ¾ of the months prior, stumbled into a modest, yet still positive gain.   South of the border, the NASDAQ enjoyed its second positive month, with a strong gain of 3.62%, handily outpacing all other major benchmarks.  That said the NASDAQ is still underwater, -1.19% YTD, since many of its largest constituents are still negative (Apple -5.13%, MSFT – 4.47%, Google -3.05%).

Moving on to June, while the empirical evidence based on history shows it to be a positive month over the past century, in the past 20 years the trend is actually negative, with losses 60% of the time.

Yet that misses the point of using history as a guidebook. If one looks at past years where the S&P500 was positive or negative, the results are notably different:

Source: VIP Wealth Solutions & Bloomberg

Currently, the two most important “Headline events” for global investors are:

June 14-15 Fed meeting.

June 23rd Brexit vote

While the underlying VIX futures, last 14.08 (June 8, 2016 close) is 22.68% lower than where it finished off at the end of 2015 (reference close Dec 31, 2015 at 18.21), the British Pound Volatility index has hit its highest level in 7 years.  That suggests until the results of the Brexit vote are known or felt, a wee bit of caution or defense is warranted.


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