As the world still grapples with the spread of COVID-19, we hope you and your family are healthy and safe. The market posted a nice gain last week, slowing some of the fall it had from its high in mid-February. Although it was nice to see the market head up, we don’t think the volatility has passed just yet. With that being said, there may still be some opportunities out there for investors who can overlook the volatility.
We thought it would be beneficial to share this educational piece on volatility as it relates to the historical returns of the market. The VIX, often referred to as the “fear index,” gauges the volatility in the market. What this chart shows is that when the VIX has been over a level of 20, the one-year return of the S&P 500 has been 9% and the three-year return has been 28%. When the VIX gets over 40, like in the far right set of dark blue and light blue bar graphs, the S&P 500 returns 32% over the one year and 58% over the three-year period. The VIX has gone over 40 during this bear market from mid-February to late March.
We still expect to see the market test some of the low points it has hit so far this year, but there is long-term optimism out there. The last bullet point of this attachment summarizes market volatility in our mind, and it is a quote from Warren Buffett, “Be fearful when others are greedy and greedy when others are fearful.”