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Stock market volatility? Gyrations in 2019 are pale compared to previous years

By on April 19, 2021 0

Powerful price-induced price swings in global stock markets have recently made an unfortunate comeback for bullish investors.

Tuesday, the Dow Jones Industrial Average DJIA,
+ 0.10%
fell 473.39 points, or 1.8%, to 25,965.09, suffering its largest percentage drop since Jan. 3. Meanwhile, the S&P 500 SPX Index,
+ 0.15%
fell 48.42 points, or 1.7%, to 2,884.05, and the Nasdaq Composite Index COMP,
-0.03%
fell 159.53 points, or 2%, to 7,963.76, marking the worst daily declines for those benchmarks since March 22.

Read: ‘China chooses to retreat’ – US perspective as negotiations reach critical point

However, on a comparative basis, movements in major stock indexes, which had broken new records as recently as Friday, still lag behind the pace of price movements over the past five years, with the exception of the historic 2017 period of quiet, according to Dow Jones Market Data.

At Tuesday’s close, for example, the S&P 500 saw 13 total swings – nine days up and four days down – of at least 1% this year, up from 36 of those moves so far in 2018, 31 of these fluctuations in 2016, 23 in 2015 and 25 the previous year, year-to-date. Only 2017, saw less sudden movements, with three at this point in May.

It’s a similar trend for the Nasdaq, with 22 price movements of 1% so far this year, and 12 for the Dow (see chart attached to this article).

For fluctuations of 2% or more, the Dow Jones and the S&P 500 have each had only two moves of 2% – except in 2017 – making it the least for both, since the start of the year, since 2015. The Nasdaq has had five moves of 2%, three up and two down, so far this year, which is its smallest total swings of this magnitude also since 2015. That’s outside of 2017, while there had been none so far for the technology-laden index.

Read: Sell ​​the stock market in May and leave? Not so fast, say the experts

To be sure, the swings that tested confidence in May are notable given the relative period of calm 2019 experienced after a tumultuous end last year, which represented the worst losses for the stock market in one. decade.

The Cboe VIX volatility index,
-4.72%,
a measure of market turmoil known as the VIX, and sometimes Wall Street’s “fear gauge,” jumped 34% on Tuesday above the all-time gauge average of 19. This represents the highest level in the index, which has tended to rise as stocks fall, since late January.

“This recent upturn in volatility was long overdue given the streak of extraordinarily low volatility we have experienced recently,” Salil Mehta, statistician and former director of analysis of the $ 700 billion TARP program at the United States, told MarketWatch. Treasury Department.

However, the number of swings the market has seen so far suggests, perhaps, that investors shouldn’t be so alarmed, just yet.

While recent market shocks may imply that a bumpy road is brewing, as investors consider the possibility that the United States will increase tariffs on Chinese imports to 25% from 10% on Friday, stoking animosity between the world’s greatest economic superpowers.

So far, market players are selling, as progress in trade negotiations had been a key part of the markets rebound for the past four months after last year’s rout.

The Wall Street Journal reported than a situation known as an offset in the VIX, where futures are higher than those farther into the future, say, June and July. This is an unusual condition as investors tend to know less about the future and therefore would pay a higher price for stock downside protection, which VIX contracts can represent.

Mehta said investors should certainly expect more market swings: “While the VIX has climbed rapidly (from 12% to 19% based on only a -2% decline in the S&P), we should expect a lot more volatility over the course of the year, leaving the news headlines aside, ”he told MarketWatch.

Frank Cappelleri, executive director and equity trader at Instinet, in a Wednesday research note that there have been previous episodes where the VIX surged last year but did not immediately cause the market to collapse ( see the graph below which follows VIX and VVIX, the index which tracks the volatility of the volatility):

“What’s the sentence again?” It’s about follow-up. This is true for the stock market … and potential trade deals, ”he wrote.

Tracking a rebound was what markets were attempting early Wednesday, with the Dow Jones up 0.4% and the S&P 500 and Nasdaq gaining 0.3% in the afternoon stock.

Opinion:The return of the S&P 500 in the next five years? Zero, says Mauboussin

—Mike DeStefano contributed to this article


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