This is one of the biggest things that gets people run over on the long side. When volatility storms back in a hurry (i.e. a volatility move of 34% yesterday on front-month VIX) that’s going to leave a mark.
To put this into context, it was the first down day (of over 2%) for the S&P 500 since October which is a long time ago. In the last two years, we’ve only had five market-down days of over 2%. Only five.
Now if that sounds like “not a lot of market-down days,” you’re right. If you go back to 2011, you had twenty market-down days of greater than 2%. And that’s when what was happening?
- Europe was slowing
- Europe went into crisis
- US blamed their own slowing on Europe
- Bonds went up
Oh the memories, the memories…