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Aftershocks Are The Norm

Financial markets have trembled in recent days but it’s important to keep things in perspective. Aftershocks are the norm after a market earthquake. Before the February episode there had been only 10 instances since 1988 when volatility (the VIX index) rose to 35 or higher: a so-called market earthquake. On those occasions the S&P 500 hit a bottom an average 32 trading days after the initial surge in volatility with an average drawdown of 9.7% - table. However, this period includes three recessions (1990-91, 2001 and 2007-09). Considering only VIX surges outside recessions, the S&P 500 bottomed an average 37 trading days after the initial surge with an average drawdown of 5.2% (median 3.4%). Yesterday marked the 38th day since VIX rose above 35. The timing of the current aftershock is definitely not outside the norm. A period of consolidation is likely to endure until the upcoming earnings season as investors need to be reassured about the outlook.

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** I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone, and may not reflect the views of National Bank Financial Group. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by the Research Department of National Bank Financial **

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