Written by: Global Thought Leadership | March 23, 2018
Source: Bloomberg, March 23, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
The chart shows, between March 23, 2016 and March 22, 2018, the daily percentage moves of the S&P500 Index and the NASDAQ Composite Index, along with the VIX for the same period.
The Bottom Line
It’s human nature to react to each market vibration – but not all vibrations turn out to have the same ripple effect.
Consider the past 12 months. Since last March 23, US stocks, as represented by the S&P 500 and NASDAQ indexes, have moved over 2% several times intra-day over that period, after two years of relative calm.
Since the beginning of 2018, two periods of disruption, in early February and during this past week, continued the pattern of volatility already established in the previous months.
But a look at the CBOE S&P 500 Volatility Index (VIX) suggests that the early February downdraft was a much more notable event than the previous moves. Those days were marked by hypersensitivity to slightly larger-than expected wage growth, the collapse of a VIX-related ETF, and a technically vulnerable S&P500 price level.
And while the level of political tension around world trade has ramped up in recent days, the VIX suggests that early February could have been the high-water mark – unless, of course, the -2.5% to -4.5% downdraft in Asian markets on Friday are a harbinger for the US markets in the coming days.
Bottom line: It’s important to view each instance of market volatility on its own terms, rather than reacting the same for all.
And while the prospect of rising trade barriers with China – and elsewhere – could indeed affect company fundamentals such as profitability, not all companies in all regions will be affected the same. And therein lies the opportunity for fundamentals-driven, disciplined active managers to seek to separate potential winners from losers in this sort of market environment.
IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.
Active management does not ensure gains or protect against market declines.
You are leaving www.leggmason.com and being directed to a new site.
This link leads to a website that is intended for U.S. investors only. The products and services described on the website are not available to non-U.S. investors. Non-U.S. investors should disregard this email. Legg Mason takes no liability for the onward transmission of this material. All investments involve risk, including possible loss of principal.
Investors should consider the fund's investment objectives, risks, charges and expenses carefully before investing. Find this and other information in each fund's prospectus or if available, summary prospectus on the product specific pages of this website. Read it carefully before investing.
An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
INVESTMENT PRODUCTS: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
DID YOU KNOW THAT YOUR INTERNET BROWSER IS OUT OF DATE?
Your browser is out of date and may not be compatible with our website. A list of the most popular web browsers can be found below.
Note: If you are seeing this pop up in Internet Explorer and are running version 8 or higher, please go into Tools (ALT+T), and then to Compatibility View Settings and make sure "Display Intranet Sites in Compatibility View" is not checked.