Volatility has returned to global equity markets. This perhaps isn’t entirely surprising after a sizzling 2017 in which the S&P 500 generated a total return of 22% with record low levels of volatility. In fact, the S&P 500 generated losses of 1% or larger in only four trading days during 2017; the last time this happened was 1995.
The decline of 4.1% on February 5 was the largest since 2011, a period marked by Standard & Poor’s downgrade of the AAA credit rating for U.S. Treasury debt and the Eurozone debt crises. But unlike 2011, the world today is enjoying a level of synchronized global economic growth not seen since before the 2008 financial crisis, providing a tailwind to equity and credit markets.