Market Update – May 1, 2020

The VIX, a market volatility measurement discussed in the market update letter sent on April 10th, showed positive signs early this week that the markets were reverting to a more normalized structure. This was due to the fact that the VIX closed lower than its predicted future value for the first time since Feb 21, which was right at the market peak prior to the collapse (source: Bloomberg – The VIX Just Revealed an Optimistic Signal for U.S. Stocks).

Often called the “fear gauge” the VIX provides an indication on how investment specialists are feeling about the markets. In a typical market scenario, investment specialists show more uncertainty on future valuations, driving up the future value of the VIX in comparison to its current value. As mentioned, for the first time in two months, this is what we are seeing, indicating that the markets are beginning to act in a more characteristic fashion.

The charting of the spread between the predicted future and the current value of the VIX, can be seen here. Source: Bloomberg – The VIX Just Revealed an Optimistic Signal for U.S. Stocks

However, while they are normalizing, the VIX still shows that we are firmly in a state of market turmoil. It is often assumed that when the VIX is valued at over 20 points, the markets can be considered to be in turmoil (source: A Practitioner’s Guide to Reading VIX®). At the end of trading on May 1st, the value of the VIX was 37.19. While still quite high, it is substantially lower than the peak VIX value seen on March 18th, which was 85.47, yet another sign we are starting to see economic improvements (source: Yahoo Finance).

These positive signals early this week manifested in strong performances for the three market indices we have been studying throughout these update letters. Unfortunately, midweek comments from Apple and Amazon about the impact of the virus on their businesses wiped out most of the strong early gains this week (source: Claire Ballentine – Bloomberg: S&P 500 Erases Weekly Gain on Profit Warnings: Markets Wrap).

We can see the daily returns here. Source: Yahoo Finance

The overall returns for the week are found here:

Market IndexReturns Week of April 27th
TSX (Canada)1.39%
S&P 500 (US)-0.21%
Dow Jones (US)-0.22%

Source: Yahoo Finance

While the poor performance seen towards the end of the week is unfortunate, from a big picture perspective, we continue to see improvement and a recovery from the current market bottom, with the S&P 500 posting its best April returns since April 1987 (source: Claire Ballentine – Bloomberg: S&P 500 Erases Weekly Gain on Profit Warnings: Markets Wrap).

Please let me know if you would like to discuss this update, or any other aspect of your investments or financial planning in general. I would be more than happy to provide a personalized report on how your investments have handled this crisis, as well as any potential updates I might suggest.

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