For a number of months, we have been advising clients to “expect more volatility.”
For most of 2017, “more volatility” was elusive: 2017 was one of the least volatile years for the stock market in history, as equity prices worked gradually higher throughout the course of the year.
But the placid environment that characterized 2017 has given way to a markedly different capital markets climate in 2018.
The stock market ripped higher to start the year, gaining 7.4% during the first 19 trading sessions (15 up days, only 4 down days), with the S&P 500 reaching an all-time high of 2,872 on January 26, one of the best starts to a new year for the stock market ever.
Interest rates also rose sharply at the start of the year, with the 10-year Treasury yield advancing from 2.40% to 2.88%. The rise in bond yields spooked equity investors, and triggered waves of intense selling on Friday and Monday, which were exacerbated by computer-driven algorithmic trading. Stocks closed down 4-5% on Monday, one of the largest single day declines in history.