As the current bull market continues into its ninth year, investors wait for the next big correction and the volatility that would accompany it. Since the financial crisis, events that have led to volatility spikes have been short-lived and had minimal impact on the market over the long term.
Bad but short: Periods of higher volatility typically accompany lower returns, but negative return periods are shorter than positive return periods. The S&P 500 return has been positive in 80% of all three-year periods since 1990.
Fewer spikes: Spikes in volatility are more severe than drops, but occur less frequently. Since 1993, there have been 21 0.5% monthly increases in volatility and four jumps of more than 1%, three of which occurred during the financial crisis.
More stability: The dispersion of returns among S&P holdings has been low and more stable since the recovery. While returns have been generally lower, there have been fewer instances of negative quarterly returns over that period.
Active excels: Active managers have fared well amid higher volatility as stock-picking comes more into favor. Questions remain as to whether passive funds will stay in vogue, or active manage- ment will regain lost ground.
Note: Rolling three-year annualized standard deviation of the S&P 500 index is used throughout as measure of market volatility. Sources: Bloomberg LP, Morningstar Inc.
Compiled and designed by Charles McGrath and Gregg A. Runburg