The stock market exhibited little volatility as the S&P 500 index climbed 12.4 percent last year, with the CBOE Volatility Index (VIX), hitting a seven-year low in June.
The market suffered only five corrections of at least 4 percent in 2014, and each time, stocks quickly rebounded.
But many experts expect that calm to be broken this year. "We have the view that investors need to buckle in" to protect against turmoil in the stock market, Lori Heinel, chief portfolio strategist at State Street Global Advisors, told
The Wall Street Journal.
Valuations could pose a threat to the six-year bull market. The S&P 500 had a trailing price-earnings ratio of 19.67 as of Dec. 26, up from 18.98 a year earlier, according to Birinyi Associates.
The Federal Reserve also may contribute to volatility, as it is expected to begin raising interest rates from record lows around the middle of the year. "The continued focus in the market is still very, very much on the Fed," Heinel said.
If the Fed doesn't get it right, “it could wreak havoc with the market. It has for the last few years and there is no reason for that to change.”
Rising profits and the Fed's record-low rates have created a perfect storm for stocks over the past six years, with the S&P 500 more than tripling from its March 2009 low.
But eventually that nirvana will come to an end, says Andrew Smithers, founder of Smithers & Co. economic research firm.
"What we are looking forward to at some point is the combination of strongly rising interest rates and falling profits — and that is not a nice combination for markets," he told
The New York Times.
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