In July the S&P 500 Index gained 79.5 points, an increase of 4.9%.
In August, the S&P 500 hiccupped and fell 52.8 points for a decline of 3.1%. Historically, the equity markets often dip in August, so the correction did not catch most people by surprise.
In July and August the historical late summer tendencies were discussed, but that didn’t stop some writers and economists from attributing the August volatility to a series of events at home and abroad.
Across the pond there were worries about chemical warfare in Syria, the instability of Egypt, and the chess match Vladimir Putin and President Obama were playing with Edward Snowden as their pawn. North Korea, Benghazi, and Iran’s threat to produce nuclear weapons were recent memories.
At home, attention was focused on whether Janet Yellen’s feet would fit in the glass slipper that will be left behind by Ben Bernanke. The Fed also captured the heart of many with the question “to taper or not to taper”? Those who looked Into the not-too-distant future could see that the members of Congress were entering preseason training camp to play another game of chicken with the federal budget.
At the time, concern was expressed that these events might derail the bull market. As September approached, these events turned out to be nothing more than a case of nasty indigestion.
Plop, plop. fizz, fizz. The S&P 500 appears to be poised for a quick recovery in September.
A look at the VIX shows the volatility associated with the excitement of the summer was minimal compared to previous crises.
Note: VIX is a weighted blend of prices for a range of options on the S&P 500 index. VIX measures market expectations of near term volatility conveyed by stock index option prices. VIX is produced by the Chicago Board of Exchange (CBOE) to volatility of the S&P 500 index over the next 30 days.
©Copyright 2011 by CBER.