Expect The Unexpected!
Equity Markets are cheaper:
S&P 500 is down 12.5% from its highs (May 2015).
Canada (S&P TSX) is down 15.5% from its highs (Sept. 2014).
Japan down 10.5% (Jul. 2015).
UK down 15% ( Apr. 2015).
Euro down 16.5% (Apr. 2015).
Australia down 13% (Apr. 2015).
So we have our correction.
Volatility hit levels not seen since 2009 on Monday (near 55 on the VIX) but closed back below the weakest levels in 2010 and 2011 yesterday (at 36 on the VIX).
Historically, higher volatility spikes early on, but volatility levels remain lofty for a period of time following the big spikes, but gradually decrease.
The S&P 500 should see some further buying support at last Octobers lows near 1820-40, if that holds, then we could possibly move back to the 2000 - 2100 level (as the next move).
Otherwise the up-trend line from the 2009 bottom will be the next test of support at or near 1700.
The 2007 high near 1600 follows that.
Until the up-trend line is broken, we are still in a long-term (secular) bull market.
Key Catalysts will be:
What will happen to the Chinese economy, will it be able to restructure and return to growth?
Will the US economy lift off in the 2nd half of 2015?
Both of these resolved in a positive way should help commodity prices eventually find support.
This will assist developing economies.
Inflation will likely remain low for some time to come.
At this point we have not seen what the collateral damage has been and if there will be "knock-on" effects after the equity market melt-down.
Certainly the trillions of $ of realized and/or unrealized losses will leave investors a little less wealthy, but the impact on the market psychology will take a little while to determine.
So we shall be watching closely.
Remember, that these are all short-term phenomenon and despite all the doom and gloom that may be foisted upon us by the media in the next little while, we have to stay focused on the long-term:
Most importantly your future goals and managing the risk of not achieving them.
Scott Tomenson,CIM Managing Partner, Chief Investment Strategist