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Is Market Volatility Still Elevated?

"Volatility gets you in the gut. There's no question that when prices are jumping around, you feel different from when they're stable." - Peter Bernstein, economist

These were the lead-ins from client calls and social encounters from the past week.

"Man, the market has been volatile!"

"This market is crazy!"

"These swings are nuts!"

Meanwhile, 2021 is setting up to be one of the calmest on record for the S&P 500. What am I missing?

Put another way, what are people looking at?

Source: Bespoke Investment Group

The above graph shows the the steady climb of the S&P over the past 12 months. Up until this week (9/20/21), it had been over 300 days since the S&P has had a 5+% pullback!

To put the above in historical context, we pulled S&P 500 data going back to 1928 to look at max intra-year drawdowns.

Source: Compound, Charlie Bilello

The above data set shows S&P 500 max intra-year drawdowns from 1928 - 2021. Over the past 57 years, only 1964, 1995, 2017 saw shallower losses than 2021. Even with the latest market pullback, 2021 is still one of the calmest on record.

Catching up to this week (9/20)/21), even the current 5.2% decline is modest compared to recent history. Since the March 2009 low, there have been 26 instances of 5% corrections. The median drawdown being 8.4%.

Source: Compound, Charlie Bilello

The above chart shows the length and percentage decline of every 5%+ pullback since the March 2009 low.

There's a perpetual narrative of outsized volatility in the stock market. In 2021, perception does not meet reality.

Inquiring minds might ask, what is normal underlying movement or standard deviation for the S&P 500 in a given year?

Standard deviation is a measure of how dispersed the data is in relation to the mean or average. Low standard deviation means data are clustered around the average, and high standard deviation indicates data are more spread out.

According to Reuters, from 1926 to 2017, the median standard deviation for the S&P 500 is 12.5%.

The standard deviation for the S&P 500 in 2021 (as of 9/20/21)?


This has been an historically docile year for the U.S. stock market.

Why is there an extreme volatility narrative?

We have a few theories...

People are paying attention, perhaps more than ever.

According to The Hustle newsletter, during the pandemic interest in finance and investing has skyrocketed. Since this time last year:

Finance app downloads are up 20%

Hours spent on finance apps are up 90%

Hours spent on trading and investing apps are up 135%

If you're watching the market obsessively every day, it's going to seem schizophrenic.

Investors have PTSD from 2020

The S&P cratered 35.4% in 33 days. This was an unprecedented drop. The market snapped back almost as quickly as it fell, catching many investors off guard.

Many investors are still scarred from the dramatic whipsaw of 2020.

Egregious statements make the news, the mundane does not (see Intoxicated with Pessimism).

The hot-take culture meets Wall Street.

"Tell someone that everything will be ok and they’ll shrug you off. Tell someone they're in danger and they’ll hang on your every word." Morgan Housel, Collaborative Fund

If you want viewers, readers, followers, subscribers, etc. to sell ads, say something outlandish.

Volatility, just like traditional market cycles, ebbs & flows.

Boring turns to volatile.

Volatile turns to boring.

We borrow a few comments from our post, "Stability Breeds Instability," from May 2019...

"All stable economies sow the seeds of their own destruction." - Hyman Minsky, Professor of Economics, Washington University.

In other words, "stability breeds instability" is the idea that as people feel good about current economic prospects they tend to consume, take on debt, speculate, etc. The risk-seeking behavior can create imbalances or excess leading to economic instability.

We are in a unique time, investors think the market is volatile, but it's really calm. Do they lose their minds during the next real bout of market disruption?

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