The lack of volatility and the run-up of the S&P 500 over the last year and a half has created a false sense of security regarding normal market behavior. Despite seeing the second 5% correction in the S&P 500 this year (we expect three in a typical year), the index for the year has delivered a total return of 3% through October 13.
After an unusually long period of market calm, investors’ anxiety was piqued early in the quarter by the escalation of geopolitical tensions in Ukraine, a number of intensifying conflicts in the Middle East, the failure of a major Portuguese bank, and the Argentine government’s technical default. The accompanying resurgence of stock market volatility did not come as a complete surprise. Markets bounced back in August on positive economic reports including a pick-up in the manufacturing and non-manufacturing indices, falling ongoing unemployment claims, accelerating motor vehicle sales, and rising consumer confidence. The S&P 500 closed at an all-time high of 2011.36 on September 18 but retreated by quarter-end, finishing just slightly positive for the quarter. So far this year through September 30, the S&P 500 is up 8.33%.