Revealing Favorable Investing Environments for the S&P 500 Index [Premium Subscribers]
Weekly updates on the innovation economy & market commentary.
Introduction
Understanding historical probabilities, historical outcomes, and current market conditions can help more investors get the likelihood of investing success in their favor.
In today’s newsletter, Drawing Capital utilizes a data-informed approach to analyze and assess historical data related to the S&P 500 Index, with specific attention on historical probabilities, percentage drawdowns in the S&P 500 Index, and the VIX, which is a measure of implied volatility in the near-term for the S&P 500 Index. While there are no guarantees or certainties in investing, getting the investing probabilities in one’s favor is obviously favorable.
Obviously, while future performance can deviate from historical returns, understanding the historical distribution of outcomes and event probabilities help to imagine investing possibilities and provide a historical context.
A quick note for SPX, VIX, and % Drawdowns:
SPX is the referenced ticker symbol for the S&P 500 Index.
VIX is the referenced ticker symbol for the CBOE Volatility Index.
% Drawdown is the percentage drawdown from the prior local price peak. For example, if a prior peak price was $100/share and now the stock is trading at $85/share, then this is a 15% drawdown.
According to CBOE, “The VIX Index is a calculation designed to produce a measure of constant, 30-day expected volatility of the U.S. stock market, derived from real-time, mid-quote prices of S&P 500® Index (SPX℠) call and put options. On a global basis, it is one of the most recognized measures of volatility -- widely reported by financial media and closely followed by a variety of market participants as a daily market indicator.”
Source: https://www.cboe.com/tradable_products/vix/
Historical 1-Year Returns for the S&P 500 Index
This graph charts the forward 1-year percentage change for the S&P 500 Index. A negative number indicates a negative percentage return. In contrast, large upward spikes (such as in March 2009 or late March 2020) indicate highly favorable buying entry points when buying a quality S&P 500 index fund.