The last year (2017) in the stock market will go down as one of the least volatile years on record. The largest pullback in stocks during the year was a scant -3%. Experienced investors know that historically the stock market has experienced yearly pullbacks in the neighborhood of double-digits. That made last year’s action in the market feel eerily calm to many portfolio managers, and begs the question, will 2018 be the year that investors see a pickup in volatility?
The answer is almost certainly yes, given that 2017 was such an anomaly in terms of low volatility. But it remains to be seen whether we will see just a mild pickup in volatility or something larger. The other element that is more difficult to predict is what will be the catalyst for any pullback. A sharp rise in bond yields? A geopolitical event? A policy shift in China? One never knows until it is upon us, but investors should not expect a repeat of last year’s ultra-low levels of market volatility.