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Insights
March 2021 Market Recap
Wednesday, April 7, 2021
The S&P 500® Index returned 6.17%
in the first quarter of 2021. With monthly returns of -1.01%, 2.76% and 4.38%
for January, February and March, respectively, the advance came in fits and
starts with nearly all of the first quarter return generated after March 4. After
January’s decline, the S&P 500® Index climbed 6.01% through
February 12 on positive-trending developments surrounding COVID-19 paired with
growing prospects for additional fiscal stimulus. Over the second half of
February, increasing concerns over rising interest rates and the outlook for
inflation gripped investors and the S&P 500® Index fell 4.13%
from February 12 through March 4. Congress passed a new economic stimulus
package in early March and the S&P 500® Index returned 5.53%
from March 4 through quarter-end.
Macroeconomic data released throughout the
quarter reflected stabilization and recovery as the pandemic mitigation restrictions
continued to ease in the U.S. The third estimate of Gross Domestic Product for
the fourth quarter of 2020 showed that the U.S. grew at an annualized rate of 4.3%,
beating the consensus expectation. The decline in unemployment rate was also
better than expected as it came in at 6.2% for February, while the
participation rate held steady at 61.4%. The February Consumer Price Index,
released on March 10, showed a 1.7% year-over-year increase which was in line
with the consensus estimate. With over 99% of companies reporting, fourth
quarter aggregate operating earnings were on track to decline 0.80%
quarter-over-quarter and 22.11% year-over-year. More than 80% of the companies
that reported earnings met or exceeded analyst estimates.
Implied volatility, as measured by the Cboe®
Volatility Index (the VIX®), averaged 23.20 in the first quarter of
2021. Average implied volatility was significantly higher than realized
volatility, as measured by the standard deviation of daily returns for the
S&P 500® Index, which was 15.86% for the quarter. The VIX®
opened the quarter at 26.97, climbed to an intra-quarter high of 37.21 on
January 27, then drifted to an intra-quarter low of 18.86 on March 26. The VIX®
closed the quarter at 19.40.
The Cboe®
S&P 500 BuyWriteSM Index1 (the BXMSM) returned
5.73% in first quarter of 2021, underperforming the S&P 500® Index
by 44 basis points (bps). With monthly
returns of 0.11%, 1.04% and 4.53% in January, February and March, respectively,
the BXM’sSM outperformance in January and March could not compensate
for its underperformance in February. 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 during equity market advances and help to mitigate market
declines. The premiums the BXMSM collected as a percentage of the
BXM’sSM underlying value were 2.44%, 1.60% and 1.74% in January,
February and March, respectively. The decline in premiums reflects the decrease in implied volatility over the course of the
quarter. Underperformance for the quarter was primarily due to the BXM’sSM
lagging return during the first half of February. The equity market decline at
the end of January left the BXM'sSM written index call option
out-of-the-money, which increased its market exposure. This positioning,
combined with the premium it collected in January, contributed to the BXM’sSM
return of 3.06% from February 1 through February 18, the day prior to the
expiration of its February call option. The S&P 500® Index returned
5.48% over the same period, outperforming the BXMSM by 242 bps.
The Bloomberg Barclays U.S. Aggregate Bond Index
(the Agg) declined 3.37% in the first quarter of the year as interest rates
ticked higher. It was the Agg’s worst quarterly return since the third quarter
of 1981. The yield on the 10-year U.S. Treasury Note (the 10-year) started the
year at its intra-quarter low of 0.91% before beginning its climb to a quarterly
high and first quarter close of 1.74% - a level not seen since January 2020.
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 expiration.
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Categories
U.S. Market Recap
December 2021 Market Recap
November 2021 Market Recap
October 2021 Market Recap
September 2021 Market Recap
August 2021 Market Recap
July 2021 Market Recap
June 2021 Market Recap
May 2021 Market Recap
April 2021 Market Recap
March 2021 Market Recap
February 2021 Market Recap
January 2021 Market Recap
December 2020 Market Recap
November 2020 Market Recap
October 2020 Market Recap
September 2020 Market Recap
August 2020 Market Recap
July 2020 Market Recap
June 2020 Market Recap
May 2020 Market Recap
April 2020 Market Recap
March 2020 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
Too Much of a Good Thing?
Has the Federal Reserve Taper Already Impacted Vol
License to Kill (Portfolio Returns)
What Will Taper Do to Implied Volatility?
How Can Investors Benefit from Rich Volatility Ris
Volatility Is Where You Find It
Taking Stock at Mid-Year—What Can Investors Rely O
Volatility Pricing Indicates Market Expectations
A Multidimensional Volatility Environment
The Alternative to "There is No Alternative"
A Closer Look at Bond Market Performance
Familiar Factors Present as the VIX® Nears Record
Will Volatility Risk Premium Remain Attractive in
Lower, not Low: An Examination of Recent Implied V
October 2020 Market Perspective
September 2020 Market Perspective
August 2020 Market Perspective
July 2020 Market Perspective
June 2020 Market Perspective
May 2020 Market Perspective
April 2020 Market Perspective
March 2020 Market Perspective
February 2020 Market Perspective
January 2020 Market Perspective
December 2019 Market Perspective
November 2019 Market Perspective
October 2019 Market Perspective
Q3 2019 Market Perspective
August 2019 Market Perspective
July 2019 Market Perspective
June 2019 Market Perspective
May 2019 Market Perspective
April 2019 Market Perspective
Market Review
Active Overwrite Market Review – Q3 2021
Index/RA Market Review – Q3 2021
Active PutWrite Market Review – Q3 2021
Active PutWrite Market Review – Q2 2021
Active Overwrite Market Review – Q2 2021
Index/RA Market Review – Q2 2021
Active Overwrite Market Review – Q1 2021
Active PutWrite Market Review – Q1 2021
Index/RA Market Review – Q1 2021
Quick Takes
What Is Convexity Tail Hedging?
Is Low Volatility Low Risk?
An "All Clear" Signal?
An Update on the Volatility Risk Premium (VRP)
Should Election Year Volatility Concern Investors?
Flagship (Index/RA) Commentary
2021 Flagship (Index/RA) Commentary - Q3
2021 Flagship (Index/RA) Commentary - Q2
2021 Flagship (Index/RA) Commentary - Q1
2020 Flagship (Index/RA) Commentary - Q4
2020 Flagship (Index/RA) Commentary - Q3
2020 Flagship (Index/RA) Commentary - Q2
2020 Flagship (Index/RA) Commentary - Q1
2019 Flagship (Index/RA) Commentary - Q4
2019 Flagship (Index/RA) Commentary - Q3
2019 Flagship (Index/RA) Commentary - Q2
2019 Flagship (Index/RA) Commentary - Q1
Active Overwrite Commentary
2021 Active Overwrite Commentary - Q3
2021 Active Overwrite Commentary - Q2
2021 Active Overwrite Commentary - Q1
2020 Active Overwrite Commentary - Q4
2020 Active Overwrite Commentary - Q3
2020 Active Overwrite Commentary - Q2
2020 Active Overwrite Commentary - Q1
2019 Active Overwrite Commentary - Q4
2019 Active Overwrite Commentary - Q3
2019 Active Overwrite Commentary - Q2
2019 Active Overwrite Commentary - Q1
Active PutWrite Commentary
2021 Active PutWrite Commentary - Q3
2021 Active PutWrite Commentary - Q2
2021 Active PutWrite Commentary - Q1
2020 Active PutWrite Commentary - Q4
2020 Active PutWrite Commentary - Q3
2020 Active PutWrite Commentary - Q2
2020 Active PutWrite Commentary - Q1
2019 Active PutWrite Commentary - Q4
2019 Active PutWrite Commentary - Q3
2019 Active PutWrite Commentary - Q2
2019 Active PutWrite Commentary - Q1
2018 Active PutWrite Commentary - Q4
2018 Active PutWrite Commentary - Q3
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