SAMT Blog
Coronavirus and S&P 500: first thoughts
01. March 2020, by Mario V. Guffanti
Technical Analysis
Usually in financial markets intensity and frequency do not go together. Events with high intensity (such as a very deep and unforeseen market crash), occur with low frequency. But what happens if the frequency of these highly negative phenomena increases over time? Here below I have reported the graph of the American S&P 500 index starting from 2015. At the bottom of the chart we can find the VIX index, which shows us the expected volatility linked to the S&P 500 index. We can see that when the VIX index repeatedly reaches or exceeds the level of 25, it is very likely that the stock market will experience corrections of more than -10% (all corrections beyond the level of -10% have been shown in the chart with the number of days between the beginning of the correction and its minimum).
While in 2015 we had two corrective phenomena of more than -10%, in the last two years we had four of them, one of these is still in progress. In the past, government and central bank interventions have always been able to recover the situation, also thanks to an economic slowdown that has never slipped into recession. Could it happen this time too?
We still don't know if the pattern that ha...
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