If there was just one movie to describe the stock market’s 2016 behavior it would be Fast and Furious.
Stock market volatility, measured by the VIX, has shot up 25% during the first several weeks of trading. This uneasiness is reflected in the performance of the broader stock market in 2016.
It’s the worst yearly start for the stock market in eight years. Thus far, ETFs linked to the Dow Industrials (DIA), Nasdaq Composite and S&P 500 (SPY) have fallen 7.8% to 12.2%, with the technology heavy-Nasdaq declining the most. Large-cap companies like Apple (AAPL), Amazon.com (AMZN) and LinkedIn (LNKD) that led in previous years are now all posting negative year-to-date returns
Beyond the broader market, sector performance within the S&P 500 has turned defensive.
Consumer Staples (XLP) and Utilities (XLU) have held up better than the broader market and utilities are the only S&P industry sector with a year-to-date gain. XLU is up almost 8% while XLP has a modest loss of 2.2% (Other S&P industry sectors are off anywhere from 6% to 12%.)
A January 2016 report titled “Peak Profits” from Research Affiliates observes that earnings per share for the S&P 500 Index peaked in the third quarter of 2014 and have slid 14% since then. According to the report, this decline represents “only one of four drops of similar magnitude during the past 25 years and each event resulted in double-digit price declines for the U.S. stock market.”
The Financial Sector SPDR (XLF), which includes Berkshire Hathaway and big banks like Wells Fargo, JPMorgan Chase, Bank of America and Citigroup, is the worst performing sector, down more than 12% year-to-date despite having had their strongest quarter (Q3 2015) in M&A volume and benefiting from rising advisory fee revenues.