Although most market analysts only a week ago thought that the S&P500 would quickly climb back to levels last seen before the Coronacrash of mid march, the opposite now seems to be happening.
The WTI oil price crash of the past few days reminded everyone that the widest US market index lost over 30% in March in a few days of trading. That drop was primarily attributed to the spread of the novel coronavirus (COVID-19) and the effect it had on economies.
The index had initially recovered and gained more than 500 basis points but is still has a long way to go before it would be positive for the year.
With the recent falls of the past few days in mind, Bank of America has changed it’s outlook and now says that the S&P 500 can mark new lows if the current volatility continues for much longer.
Volatility Spells Trouble For The S&P 500
According to a recent report, a team of analysts from Bank of America believes that the S&P 500 could reach new lows if the Volatility Index pattern holds.
The experts say that the S&P 500 has been tracking the bear market rally of 2008-09 since its VIX peak on March 16th.
Data shows that during the previous bear cycles from 1987, 2002, and 2008, it took between one and a half and four months from the VIX peak for the S&P 500 to bottom. During these times, the S&P increased some 15% to even 25% from it’s new low before it started falling again.