Line chart demonstrating that identified markets have followed similar trends from 2008-2020 including during times of volatility and U.S. recessions.
Y-axis: Index level; x-axis: Years 2008 – 2021
Market volatility shown for:
- Euro Stoxx 50
- Nikkei
- S&P 500
- Hong Kong Hang Seng
U.S. recessions shown for 2008 – 2009 and 2020. Both periods saw spikes in volatility. For the 2008 recession, the Nikkei volatility index level was above 90, followed by Hong Kong’s Hang Seng index near 80. The Euro Stoxx 50 volatility index and the S&P 500 volatility index were both near 60.
All four indexes have spiked significantly during the coronavirus pandemic and the February 2020 recession. As of 3/16/20 the Euro Stoxx 50 volatility index was above 85, S&P 500 volatility was above 82, the Hang Seng index was near 65, and the Nikkei volatility index was above 60. By the end of September, all four volatility indexes had moderated somewhat, with the Hang Seng index near 22, the Euro Stoxx 50 near 26, the Nikkei near 24, and the S&P 500 near 26. By the end of Q3 2021, indexes were: Hong Kong over 24, Euro Stoxx over 23, Nikkei over 21, and the S&P 500 over 23.
Events highlighted:
- Financial crisis, with volatility peaking above 90 for the Nikkei, at 80 for the Hang Seng, and at 60 for the S&P and Euro Stoxx 50, all around the end of 2008.
- U.S. debt downgrade, with volatility peaking in late 2011: Euro Stoxx 50 (over 45), Hang Seng (about 45), and the Nikkei and S&P 500 indexes, both at about 35.
- Fed rate hike 2016, with volatility peaking around early 2016. Highest volatility was that of the Hang Seng index (about 35), closely followed by the Nikkei index (also about 35), the Euro Stoxx 50 index (about 32), and the S&P 500 volatility index (just below 30).
- Trade war concerns, with volatility peaking in late 2018, led by the Nikkei (at about 30), and closely followed by the Hang Seng, Euro Stoxx 50 and the S&P 500 volatility indexes (all at about 25).
- Coronavirus epidemic fears, led by the Euro Stoxx 50 (above 85, Q2 2021 near 18), the S&P 500 (above 82, Q2 2021 near 16), the Hang Seng (near 65, Q2 2021 near 16), and the Nikkei (above 60, Q2 2021 near 17).
Except in periods of peak volatility, indexes generally moved closely together over this time span, with volatility typically between 20 and 40.
Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from January 1, 2008 to September 30, 2021. For illustrative purposes only. S&P 500 volatility measured by the CBOE Volatility Index® (VIX®). Euro STOXX 50 volatility measured by the VSTOXX Index. Hong Kong Hang Seng volatility measured by the HSI Volatility Index. Nikkei volatility measured by the VNKY Index. These indexes measure the markets expectations for implied or expected volatility based on option prices. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Fed = Federal Reserve.
Key Takeaways
- Volatility receded quickly following the pandemic spike and has settled at slightly higher levels than prior to the pandemic, indicating a bit of residual uneasiness among investors.
- We expect periods of market uncertainty to persist through the end of 2021, but volatility should present opportunities to invest in markets at a lower price point.