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Putting 2018's Volatility in Perspective

As you are probably very well aware, there has been a notable pickup in market volatility recently. This increased volatility feels even more pronounced following 2017, which was one of the least volatile markets in history. But is the volatility that we are experiencing right now in 2018 outside of historical norms?

I did some investigation into past market numbers to see what I could find. Interestingly enough, when I looked at the historical numbers, I found that 2018 is definitely not outside of the historical norm. I know. It certainly doesn't feel that way. But in the moment, things always seem tougher than they actually are.

So far in 2018, there have been 57 days in which the Standard & Poors 500 Index (S&P 500) moved at least 1% up or down. For comparative purposes, this is actually seven times the amount of such moves that we saw during the relatively calm period that was 2017. However, we need only look back to 2015 to find a year in which we had more days of market moves up or down of 1% or more. In that year the market recorded 72 such days. With only 15 trading days remaining in the year, the S&P 500 would have to move at least 1% every day until the end of the year to equal that mark.

That being said, just looking at the number of days in which the market moved more than 1%, doesn’t necessarily give us a complete picture of overall volatility. For example, on Tuesday this week (12/4), we had a day where the S&P 500 was down 3.24%. So, I wondered if we could be experiencing a market that is having an abnormally high number of larger daily moves. As it turns out, not really. So far in 2018, there have been 15 days when the market changed by at least +/- 2% and there have been five days when it moved at least 3%. Again, comparing this year to 2015, we see that there were ten days of +/- 2% moves and three days of +/- 3% moves. We don't need to go far to find a year that exceeded these numbers. It happened only seven years ago. In 2011, the S&P 500 had 96 days of +/- 1% moves, 35 days of +/- 2% moves, and 12 days of +/- 3% moves. Another interesting tidbit? Each of the three years preceding 2011 also recorded more 1%, 2%, and 3% days, than we have seen so far in 2018.

Zooming out a little farther, we can see that since 1928 the S&P 500 on average has moved more than 1% on 60.26 days each year, more than 2% on 16.76 days each year, and more than 3% on 6.58 days each year. Therefore, while the recent volatility has been painful, from a historical perspective, what we have been experiencing in 2018 has been in-line with historical averages.

Here are a few more interesting historical data points:

  • 1932 had more 1% days, 2% days, and 3% days than any other year with counts of 181, 132, and 94 respectively.
  • 1964 was certainly a far cry from 2018. It was the calmest year on record, with just three 1% days and no 2% or 3% days.
  • Since 1928, there have been 11 years, including 2017, that did not have a day when the S&P moved 2% or more.
  • There have 35 years in which the S&P 500 did not have a single one-day move of 3% or more.

It is also worth noting that there have been zero days in 2018 that fall into the largest one day changes in the closing price of the S&P 500. The index's largest one-day gain in 2018 was 2.72%, on March 26th. Since 1928, there have been 1,040 bigger one-day gains. Conversely, the S&P 500's largest single-day decline of 2018 was -4.10% on February 5th. This ranked as the 414th largest one-day drop in the index's history.

So what's the point of all this? It is a fact that stock market volatility often drives investors to make rash and untimely decisions. I hope that this bit of historical context can help to keep you on track as 2018 comes to a close.