We have been thinking a lot about winning streaks lately. Looking at charts of the S&P 500 index it is hard not to be impressed by how many positive monthly returns we have had since the “resolution” of the last full-blown Euro crisis in mid-2012. We wanted to gain some historical perspective so we counted the number of negative monthly returns in a rolling 12 month window. We noticed a high correlation with the spot VIX. An ADF test suggests they are cointegrated.
While the current market turmoil may be a departure from recent history, in fact we are just returning to a long-term normal. Since 1990, we have had an average of 4 down months out of the last 12. The decline in the S&P last Friday puts us right at that mark.