Charts to Watch in 2018: Low Volatility

2017 was one of the least volatile years for the S&P 500 Index in history. With only eight 1% daily changes, not a single 3% pullback, and the lowest average CBOE Volatility Index (VIX) for a full year ever—2017 will go down in tranquility history.

Which brings us to an important question: What does it mean for 2018?

Per John Lynch, Chief Investment Strategist, “Historically, calm years like what we experienced last year have coincided with great bull markets, but history tells us to buckle up because the following year has tended to be a lot rockier. That isn’t a reason to panic though, as this may bring about opportunities for active investors.”

We looked at years with some of the smallest intra-year pullbacks ever and found that the average gain was nearly 26%. The next year, however, saw an average pullback of 12.1%, while the average number of 1% moves (closes either up or down 1%) spiked from under 13 to over 30. But the good news is the S&P 500 managed to gain a respectable 8.5% on average.

In other words, a continuation of the bull market is possible, but another steady move higher appears unlikely. Instead, we should be on the lookout for multiple dips and consider using those opportunities to add to equity positions during the year.



The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The VIX is a measure of the volatility implied in the prices of options contracts for the S&P 500. It is a market-based estimate of future volatility. When sentiment reaches one extreme or the other, the market typically reverses course. While this is not necessarily predictive, it does measure the current degree of fear present in the stock market.

This research material has been prepared by LPL Financial LLC.

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