Over the past 11 months, the S&P 500’s gains have been compared to various bull markets of the past: 2021, 2019, 2017, 2009, 1995-1999, etc. Will this happen? It was a brutal bear market characterized by falling lows, steep inflation and historic interest rate hikes. This is the exact opposite of now: the S&P 500 has been making higher highs, inflation has fallen significantly from its peak, and we are on the verge of our first rate cut. However, beneath the surface, something is already happening that we haven’t seen in two years: With Tuesday’s sharp decline, the S&P 500 has posted 12 absolute 1% losses in the past 24 trading days starting in July. The fluctuation is 1 (8 upwards and 4 downwards). That’s 50% of the time, which is a lot. For some context, in 2022, the S&P 500 saw 128 positive or negative moves of 1% over 252 trading days (63 up, 65 down). That’s 51% of the time. In fact, we are comparing 24 days to 252 days (basically 1 month to 12 months), so the sample size is not large by any means. However, it shows us how differently the trading landscape has changed over the past few weeks. If nothing else, this is a good reminder of what elevated long-term volatility in both directions might look like if things continue as they are. So, what happens next? Let’s take a look at the CBOE Volatility Index, the index that everyone thinks of when we hear the word volatility. On Tuesday, the “VIX” index soared 30%, the second time since November 26, 2021 that it has risen by at least 30%. Of course, another meeting happened last month: August 5 (+65%). If volatility continues to rise during the remainder of the holiday-shortened week, the VIX could rise another 40% this week. The last time the VIX rose at least +40% in a calendar week was the week ending August 2, 2024. It’s much calmer. As we all know, the VIX also sold off after breaking out in the first few minutes of trading on August 5, ending up down 13% week-on-week. However, when the VIX explodes as it has in the past, there is a tendency for further volatility in the future. Apparently that happened on Tuesday, and now the question is how much more can we expect as we head into the typically tumultuous fall months. With markets entering a historically volatile period, with the tech sector being hit hard, the first rate cut on the horizon, and a presidential election just weeks away, there’s a good chance we’ll see further volatility. The silver lining to the good news is that the S&P 500 has built up a sizable cushion since breaking out of a sharp bullish pattern in January. This leaves it experiencing two rounds of heightened volatility in 2024 – from March to April, and then from July to early August. As we just discussed, the S&P 500 may need to take more hits. If it can do so without too much damage, the index could be poised to take advantage of the bullish seasonality that historically occurs in the fourth quarter — even in election years. Disclosure: (None) All opinions expressed by CNBC Pro contributors are theirs alone and do not reflect the opinions of CNBC, NBC UNIVERSAL, its parent company or affiliates, and may have been previously published by them on television, radio, the Internet or spread on other media. The above is subject to our Terms and Conditions and Privacy Policy. This content is for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to purchase any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above may not apply to your particular situation. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor. Click here to view the complete disclaimer.
