January 2020 Market Recap
Wednesday, February 5, 2020
The S&P 500® Index declined 0.04% in January, with the small loss concealing significant intra-month volatility. January started strong with the S&P 500® Index returning 3.14% from the beginning of the year through January 17, supported by momentum from an impressive 2019 equity market rise and increasing clarity around global trade issues. However, fears that the spread of the coronavirus would have a negative impact on the global economy caused the S&P 500® Index to reverse course over the second half of the month. From January 17 through the end of the month, the S&P 500® Index returned -3.08%.
January data releases showed a stable economic environment, all but erasing concerns of a domestic slowdown. The first estimate of Gross Domestic Product growth for the fourth quarter of 2019 was 2.1%, aligned with consensus expectations and the growth rate of the third quarter. The unemployment rate held steady at 3.5% in December, in line with consensus expectations and supported by strong payroll data. The December Consumer Price Index, released on January 14, showed a 2.3% year-over-year increase, at the low end of consensus expectations. With nearly 17% of companies reporting, fourth quarter corporate earnings growth had been better than expected. Aggregate operating earnings were on track to grow 2.9% quarter-over-quarter and 3.9% year-over-year. Nearly 78% of companies that have reported earnings met or exceeded analyst estimates.
Implied volatility, as measured by the Cboe® Volatility Index (the VIX®), averaged 13.94 in January and exceeded realized volatility, which was 11.89% based on the standard deviation of daily returns for the S&P 500® Index. The VIX® opened the month at 12.47 before drifting to an intra-month low of 12.10 on January 17. The VIX® proceeded to climb and close the month at a January high of 18.84.
Cboe® S&P 500
BuyWriteSM Index1 (the BXMSM) returned
-1.13% in January, underperforming the S&P 500®
Index by 109 basis points (bps). On the third Friday of each month, the BXMSM
writes a new index call option as the option it wrote the previous month expires.
The premiums the BXMSM collects on its written index call options have
significant influence on its return potential over a period when the market
advances and helps to mitigate market declines. The premium
the BXMSM collected in December helped it return 0.97% from the
beginning of the year through January 17, but the premium was not enough to
keep pace with the advance of the equity market as the BXMSM lagged
the S&P 500® Index by 217 bps. On
January 17, the BXMSM wrote a new index call option with a February
expiration as its January option expired. The premium
collected on the new index call option as a percentage of the BXM’sSM underlying
value was 1.18% and it helped provide downside protection as the market
declined over the remainder of the month. From January 17 to January 31, the
BXMSM returned -2.08%, providing 100 bps of downside protection
relative to the S&P 500® Index.
Performance data shown represents past performance and is no guarantee of, and
not necessarily indicative of, future results.
Bloomberg Barclays U.S. Aggregate Bond Index returned 1.92% in January. The
yield on the 10-year U.S. Treasury Note (the 10-year) started the month at its high
point of 1.92% before reaching its low point of 1.51% on January 31. The shape
of the U.S. Treasury yield curve inverted in late January. The spread between
the yield of the 3-month U.S. Treasury Bill and the 10-year started the month
at a positive 37 bps and ended the month at negative three bps.
1The BXMSM is a passive total return
index designed to track the performance of a hypothetical buy-write strategy on
the S&P 500® Index. The construction methodology of the index
includes buying an equity portfolio replicating the holdings of the S&P 500®
Index and selling a single one-month S&P 500® Index call option
with a strike price approximately at-the-money each month on the Friday of the
standard index-option expiration cycle and holding that position until the next
U.S. Market Recap
February 2020 Market Recap
January 2020 Market Recap
December 2019 Market Recap
November 2019 Market Recap
October 2019 Market Recap
Q3 2019 Market Recap
August 2019 Market Recap
July 2019 Market Recap
June 2019 Market Recap
May 2019 Market Recap
April 2019 Market Recap
U.S. Market Perspective
Flagship (Index/RA) Commentary
Active Overwrite Commentary
Active Putwrite Commentary