When one considers any form of big and swift moves, this year has been one of the quietest on record for the global markets. however, volatility could soon rear its ugly head if history is an indication.
Noting its lowest ever touched, the CBOE Volatility Index or VIX, has averaged a reading of 11.54 in 2017, according to LPL Financial’s Ryan Detrick.
And noting its longest streak without such a decline in more than twenty years, in comparison, the S&P 500 Index hasn’t seen a 5 percent pullback in over a year.
“This is only the sixth time since 1950 that the S&P 500 has made it at least a year without so much as a 5 percent correction, and marks the longest streak since 1995,” Detrick explained.
However, the technician is skeptical that this trend will continue despite taking into account the fact that stocks have been hitting new record highs this week. Blue chip stocks “can go a little bit further without a 5 percent correction, maybe, but when you consider the calendar, we’ve got August and September, [there are] troublesome months coming up here,” he said during a television program last week.
“The odds of going the full year without a 5 percent correction are extremely slim,” he added.
IN fact, in 91 percent of years from 1950 until now, there has been a 5 percent pullback in the market, Detrick’s historical charts since 1950 show. Still, Detrick said that investors should actually buy the dip if it occurs even though most years do see a correction.
Firstly, Detrick has been forced into believing that economic outlook is positive due to optimistic expectations for earnings. Earnings growth of between 6 and 7 percent for the quarter is being expected by Wall Street analysts.
Secondly, the market could actually be due for another rally in the remaining half of 2017 because historically it has been observed that this happens whenever there are gains made by the S&P in the first half of that particular year.
84 percent of the time S&P has also rallied by about 4 to 5 percent in the second half of a year, whenever the index has rallied over 8 percent in the first half of that year. According to Detrick, this trend has bene observed in the index ever since 1950.
Statistically the index could be headed for more record highs by the end of 2017, given that the S&P is currently up over 9 percent year to date.
(Adapted from Bloomberg)