The new Omicron variant has been causing market volatility recently.
On Friday, the Volatility Index (VIX) shot up 54%, which was the fourth largest 1-day percentage gain ever.
You might be having flashbacks of March 2020 given what is currently in the news.
While nobody knows what the outcome will be from this variant, we can look at evidence of what has happened in the past to better understand the potential future.
It is interesting to note that the S&P 500 total returns have been positive a year later following some of the largest VIX spikes in history (see chart below).
In other words, history has shown short term volatility doesn't necessarily mean a "stock market selloff" is coming.
Short term volatility often leads to a further rise in the markets over time.
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Let's take a look at what the markets typically do in December given how the current year has been so far.
One trend that is often seen in December is a Santa Claus rally.
When the S&P 500 is up 20% for the year going into December like this year, the final month of the year is actually stronger than normal.
In fact, December is higher 8 of the past 9 times in this scenario.
December has been the worst month of the year for the S&P 500 only once in history (2018) and the second worst a few times (1968, 1980, 1996).
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My final comment to clients is investors often ride the emotional rollercoaster when they don't have a plan.
I create different scenarios that guide my investment decision making for clients.
Even though evidence shows December and into next year could be positive, I'm not opposed to taking profit and adjusting portfolios if the factors change that I watch.
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