Volatility returned to the markets globally last week with most major equity indices declining more than 5%.
Losses last week brought month to date returns for the S&P 500 and Dow Jones Industrial Average below -7% and erased strong gains seen in January.
Despite the swings in the equity markets, bonds markets remained relatively calm. The U.S. 10 Year Treasury Note finished the week yielding 2.83% just 0.01% below the prior week’s close. Corporate bond spreads widened modestly and high yield bonds returned -1.4%.
The market declines occurred during a week where there was a lack of significant economic or fundamental headlines, indicating this selloff could have been fear based or a rationalization of elevated prices following strong gains in January.
Our market dashboards continue to indicate the global economy & credit markets are healthy and the probability of near-term recession is low.
There has been speculation that the selloff was triggered by fear of inflation after unexpectedly high wage growth was detailed in the previous week’s Department of Labor report. While this could have been a factor, stable treasury yields during the week indicate the market has not repriced the risk of inflation (rising inflation is often accompanied by rising interest rates).
We had previously noted that 2017 marked a historic year of low volatility and the first calendar year since 1926 in which the S&P 500 Index had positive returns in every month. Despite the improving health of the global economy we have been preparing client portfolios for increased volatility and are well positioned.
Intraday trading was also volatile with market losses or gains typically accelerating in the last few hours of the trading d