Useful charts and data points gathered together by Morgan Stanley’s strategists in a report dated Feb 11. Their understanding is that the rise in real yields has been the real trigger of the spike in market volatility.
Bear markets (BM) are painful. Since the 50s, US bear markets have resulted in an average loss of 31% (most painful were Oct-07 at 57%, Mar-00 at 49% and Jan-73 at 48%).
Of course, timing the market is futile and doesn’t help the investor over the long run. It’s more important to have a clear view on the value of any financial asset and seize it when it trades with a margin of safety.
But understanding the market dynamics and the financial environment might be helpful, especially if you want to be able to take advantage of the next downturn.
Goldman Sachs published an in-depth report on the characteristics of bear markets and what signals investors should track to try and anticipate them.
The S&P 500 has gone 10 months without a 3%+ selloff. It’s the third longest since world war II. But the conditions for such a pullback are getting in place.
According to Deutsche Bank’s strategists, a number of facts should have investors worried about potential market correction in the coming weeks/months.
Volatility is the most disturbing factor in financial markets and it’s something people should always keep an eye on. Measured by popular metrics like VIX or VSTOXX, it’s assimilated to the « fear indicator » of investors.
Looking at the long past of the US equity market (S&P 500 in chart below), you can see that volatility goes in regimes that can change widely but rely mainly on macro environment (expansion/recession) and it’s impact on the psychology of investor (P/E or valuation).
Volatility in equity market in perspective
Investors hold firm to their Eurozone equities despite growing worries about the outcome of the French presidential election, according to the latest poll on investor positioning published by Bank of America Merrill Lynch.
Investors consider a « Le Pen Win » might produce a 5-10% market correction, but the real risk would be a Europe disintegration in the case of « Frexit », which would have deeper and far more negative implications.