Sometimes Investors Need To Go Back To School

Things got a little choppy this week, reminding investors that volatility is always lurking to rear its ugly head. However, investors should also remember that volatility is a

regular part of investing and not something to necessarily take action one until it becomes a noticeable trend or pattern. The inspiration for this week's musings is the 1986 movie, "Back To School." Here’s some trivia about the movie:

• This movie was a surprise hit in 1986. It was filmed for just under $11 million. For some perspective, the most successful comedy movie of 2025 was "Freakier Friday." It had a budget of $42 million. Yet, in 1986, "Back To School" nearly earned as much as "Freakier Friday" at $91 million box office gross.

• Though it seems hard to believe, Rodney Dangerfield was actually an acrobatic high diver in real life (in his youth) just like his character Thornton Melon.

• During the scene where Professor Turgeson (Sam Kinison) is yelling at Thornton Melon (Rodney Dangerfield) you can see Dangerfield laughing. After several unsuccessful takes with Dangerfield laughing during each take, the director decided to leave the original take in the film.

• Dr. Turner's house - Melon's love interest - was the same house used for the Doyle's where Jamie Lee Curtis babysat in the movie "Halloween."

• Most of the outdoor scenes for the movie were shot on location at the University of Wisconsin-Madison.

• The room in which Melon takes his three-hour oral exam is the same room where Alex makes her successful dance audition at the end of the movie "Flashdance."

Here's what we've seen so far this week...

Volatility Comes Knocking. When things are going well, investors tend to discount volatility or forget that it's always lurking behind the next corner. However, that doesn't

mean investors should necessarily be afraid of some volatility. On Tuesday of this week, the S&P 500 Index closed down more than 2% on the day. At the same time, the VIX spiked more than 26% on Tuesday. We then saw a rebound of nearly 2% in the S&P on Wednesday & Thursday of this week, accompanied by a decline in the VIX back down to the same level as last Friday. 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%.

A reasonable question to ask is why did volatility spike during the week? There has been much hand-wringing over geopolitical concerns, especially involving Greenland.

However, the volatility spike on Tuesday was actually more closely related to the situation in Japan. Sunday evening, Japan's PM Takaichi announced a snap election and tax cuts with no plan to cover the lost revenue. This sent Japan's bonds reeling. The yield on the Japanese 10yr Government Bond rose 16 basis points overnight. When yields spiked, capital repatriated - meaning American assets held by Japanese investors were sold to cover any losses. Japanese yields have since retreated and U.S. equities have recovered from Tuesday's sell off.

Like an older generation going back to school, sometimes investors need to be reminded how volatility works and what triggers actually signal an incoming recession.

Volatility accompanied by other warning signals is a bad thing. However, volatility driven by a single geopolitical event or temporary market adjustment is not so bad. For example, despite the rise in volatility on Tuesday, the spread between credit bonds and government bonds barely moved. In fact, spreads came back down Wednesday and Thursday and remain at 4-month lows. For the time being, it would appear that Tuesday's events were yet another buying opportunity until we get confirmation otherwise. Volatility is the price of admission for investing in equities.

Don't Put Your Faith In The Triple Lindy.  As one might expect, even though Rodney Dangerfield was an acrobatic diver, there is no such thing as the Triple Lindy. Just like

the dive highlighted in the movie, believing one stock or one asset class will rise forever is not realistic. There are times when it pays to be diversified, and that has been the case the past few months. When we compare the S&P 100 (concentrated) versus the S&P 500 (less concentrated), we see that the other stocks in the index are rising at a faster pace than the stocks at the top. Yet, the overall trend is still higher. We also see that this ratio of the top 100 stocks relative to all 500 in the index is not nearly as elevated as it was prior to the Dot.com bust in 2000.

As we continue to watch the performance of other asset classes relative to the Mag 7, the trend that started in late October of 2025 remains in tact. As Mag 7 valuations

topped in late October, other asset classes such as Mid-cap equities, Small Caps, and International began to out-perform and the gap has only continued to widen in 2026. In addition, the equal-weight S&P 500 Index, represented by RSP in the chart above, has far out-performed Mag 7 due to its lack of concentration - similar to the ratio of S&P 100 to S&P 500, previously mentioned.

Finally, just looking at the major sectors of the S&P 500 Index, we also see the 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%. Equity market broadening with a little volatility isn't such a bad thing. It often pays to have exposure in sectors and asset classes other than the "hottest" investment.

The famous Triple Lindy...

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Disclosures

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.