In the past month, the S&P500’s VIX index, which measures market volatility, declined nearly 14%thanks largely to so-so economic news.
BlackRock’s Russ Koesterich says this patch of calm is unlikely to last.
In a new blog post, he explains why market volatility will soon climb again.
“While I still believe US and global equity valuations are reasonable and stocks can advance over the next year, market volatility is likely to increase in September for four reasons:
- “September is the one month of the year when the calendar really does matter. Looking at data on the Dow Jones Industrial Average back to 1896,September has historically been the worst month of the year for stocks, with a consistent, and statistically significant, negative bias.
“This September swoon phenomenon extends beyond the United States. September has also historically been the worst month of the year in a number of European markets — including Germany and the United Kingdom — and in Japan.
- “Anxiety over Fed tapering is likely to climb as we approach the Fed’s September meeting.
- “Europe is likely to re-emerge as a source of volatility as Germany holds an important federal election in September.
- “The US budget debate will heat up again as Congress needs to pass a continuing budget resolution before the fiscal year ends on September 30th. Not surprisingly, Congress has made little progress to-date.”
While last September didn’t exactly fit into this pattern, Koesterich says, that was largely the result of unexpectedly aggressive Fed moves.