Equities Take A Breather As Volatility Returns

Equity markets pulled back last week, but certain sectors out-performed last year’s leaders. Despite the pullback, we're seeing a broadening of the equity markets.

Currently, at least 8 sectors of the S&P 500 Index are trading above their respective 200-day moving averages. When at least 6 sectors meet this mark, the S&P 500 Index is higher 12 months later 100% of the time with an average return of 11%.

On Tuesday of last week, the S&P 500 Index closed down more than 2% on the day. At the same time, the VIX spiked more than 26%. This was most likely due to a spike in

Japanese government bonds due to a snap election and new tax cuts. This caused Japanese investors to sell U.S. equities to cover bond losses in Japan. However, a rebound of nearly 2% in the S&P on Wednesday & Thursday of last week, accompanied by a decline in the VIX back down to the same level as the previous week's close eased market tensions. When the VIX breaks above 20, like it did on Tuesday after being below a level of 20 the previous 30 days, the S&P was higher 12 months later by an average of 13%, which a positivity rate of nearly 91%.

Volatility is the price of admission for investing in equities and it's likely we will see more volatility this week. There will be a lot for investors to digest on the economic,

geopolitical, and fiscal fronts this week. The Fed meeting should be fairly uneventful as there is a 97% probability of no rate cut. However, a battle is brewing (once again) over the federal budget causing prognosticators to bet that a government shutdown is looming. In addition, Mag 7 earnings, tariff threats, and lack of confidence in Japan will all likely affect markets in one way or another this week.

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The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

Past Performance does not guarantee future results.