By Joy Wiltermuth
Let your shoulders relax. Breathe. Take a minute.
This weekend marks the unofficial start of summer in the U.S., kicking off what could easily be the first real shot for many to get away since the start of COVID crisis, as domestic restrictions fade and vaccinations accelerate.
But the period after Memorial Day also could see exacerbated swings in stocks and other financial assets for a few months, as market participation thins out, as more people take time off and if other percolating factors come to a tipping point.
“A lot of people probably will be going on more European summers,” said Nancy Davis, founder of Quadratic Capital Management about Wall Street participants, particularly with “more folks mandating people come back to the office in the fall.”
JPMorgan Chase & Co. /zigman2/quotes/205971034/composite JPM +1.55% , Goldman Sachs Group Inc . /zigman2/quotes/209237603/composite GS +0.13% , Bank of America Corp. /zigman2/quotes/200894270/composite BAC +0.83% and other large banks plan to recall some workers back to offices this summer, with a broader return after labor Day.
“With less market participation than usual it could mean nothing happens,” Davis told MarketWatch. “But if there are not that many market-makers out there, markets are pretty fragile liquidity-wise.”
Davis, a former Goldman Sachs banker, plans to stick close to home this summer, but does expect occasional pockets of volatility. She’s a portfolio manager and the brains behind the Quadratic Interest Rate Volatility & Inflation Hedge ETF /zigman2/quotes/212340916/composite IVOL -2.84% , a fund that aims to act as a “hedge against corrections in equity and real estate.”
“I can see market volatility being episodic,” she said.
Back then, the focus still was on improving impromptu home offices and coping with the pandemic by largely avoiding others. Investors now wanting a reason to unplug won’t have to look very hard.
Nearly 70 years of data, compiled in this chart by Bespoke Investment Group, shows a historical pattern of pretty flat trading for the S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.04% on a one-month average in summer months.
Stock-market price volatility and the Cboe Volatility Index /zigman2/quotes/210598281/delayed VIX -2.14% , or Wall Street “fear gauge,” also have been trending below average in summer months since 2000, according to this chart from Darren Schuringa, chief executive of ASYMmetric ETFs /zigman2/quotes/225299441/composite ASPY -0.15% in New York.
The VIX tracks options trading on the S&P 500 index to measure expectations for stock turbulence over the coming 30 days. ASYMmetric’s price volatility metric looks at changes in share price for the index, “rather than what spectators think” could happen with prices, Schuringa said.
That sounds reassuring, right? Here comes the hard part; the things that might be unwise to ignore.
“We have a lot more certainty about our ability to stay healthy when we go out. Our lives have more certainty,” said Luke Tilley, head of asset allocation and chief economist at Wilmington Trust. “But there’s not necessarily more certainty in markets.”
“I see several drivers that could lead to equity market volatility over the summertime,” Tilley told MarketWatch, pointing to a high likelihood of more surprises in coming economic data.