Market Follow-Up: Stock Market Volatility and Lessons from 2011

Navigating Market Volatility in 2025 with Lessons from 2011

Led by President Trump’s announcement last week of a 90-day pause on the imposition of reciprocal tariffs—excluding China—we’ve seen the market step back from the brink. However, before investors assume we’re heading straight back to all-time highs, it’s important to recall the scenario we outlined in last week’s market commentary.

While the recent spike over the last week has been welcomed, we are still in the middle of a trade war with China and must work toward new trade agreements with many other countries. In short, there’s still significant work ahead.

This brings us back to our previous warning: the market is likely to retest the lows from early last week before forming a more durable and sustainable bottom from which to rebound.

We anticipate that the coming weeks may feel frustrating for investors, as the market will likely trade within a wide range—offering hope one day and uncertainty the next. Once again, this is all part of the process. Let’s re-examine the ‘retest’ scenario from 2011 that we discussed on Monday.

Data Derived from E-Signal

After falling roughly -18.50% between July 21, 2011, and August 9, 2011, due to concerns over the Euro Debt Crisis and the downgrade of the US credit rating for the first time ever, the S&P spent the next two months in an extremely volatile range before finally putting in the retest or ‘external’ low.

As the table illustrates below, after the internal low on August 9th, the S&P experienced eight swings +/- 6.00% over the next two months. Every single rebound attempt was eventually reversed, wearing on investor patience.

Data Derived from Barchart.com

On October 4, the S&P reached a low of 1,074, undercutting the August 9 low by 2.45%, leaving many investors feeling like the worst-case scenario was coming true with the economy rolling over into a double recession. But as quickly as the S&P undercut the August lows, it reversed and started a four-year run into the 2015 highs.

The key factor in these undercut lows or internal/external lows is that the market pressure is not nearly as heavy on the external low as the initial or internal low. Below are a few of the market indicators that we use to track the overall selling pressure between two lows:

Key Indicators for Analyzing Stock Market Volatility

Data Derived from Barchart.com

Volatility Index

The VIX Index was 14.95% lower on the October external low than the August internal low, signaling less overall fear in the market.

S&P 500 Volume

As measured by the number of shares traded in the S&P 500 ETF (SPY), 250 million fewer shares traded in SPY on the October retest, a clear indicator of less selling pressure.

Put/Call Ratio

The ratio represents the number of Put contracts traded divided by the number of Call contracts over a given period, in this case a trading day. Although it was still above 1, the Put/Call Ratio on the October low was significantly lower—showing less negative market sentiment—than the August ratio.

S&P 500 Stocks Above 200-Day Moving Average

This one is simple; it’s the percentage of stocks in the S&P 500 that are trading above their long-term 200-day moving average. In August 2011 at the lows, there were roughly 7% of the stocks in the S&P 500 trading above their 200-day moving average. Two months later at the October retest low, that percentage had improved to 12%.

McClellan Oscillator

The indicator helps to evaluate the balance between advancing and declining stocks on the New York Stock Exchange. Historically a reading below -150 represents the market as being oversold. The August low reading at -438 was one of the worst on record. By the time the S&P undercut the low in October, the McClellan Oscillator was positively diverging from price with a reading of -166.

Daily NYSE Breadth

The difference in NYSE breadth from the low in August vs. the low in October might offer the most bullish indicator over this correction. At the August low, the breadth was -2.989—one of the worst breadth readings outside of Black Monday and the Covid Crash. Only 39 NYSE stocks were up on the day of the August low, but by the time the external low was put in two months later, the breadth was positive on the day.

Looking ahead, we expect it will take several weeks—or possibly months—for the market to establish a more durable low from which it can begin a sustained recovery. As seen with Wednesday’s sharp rally followed by Thursday’s partial reversal, the road forward is likely to involve a series of starts and stops. Many of these fluctuations may prove frustrating and, at times, test investor confidence.

Fortunately, we can lean on our time-tested indicators and historical market patterns—such as those from 2011—to help navigate the path ahead.

In the near term, continued market volatility in 2025 is expected. However, it's important to recognize that this is part of a broader process—one that has the potential to ultimately set the stage for a new bull market when complete.

Brad Tremitiere CIO

Chief Investment Officer - Partner

Financial Advisor