Volatility Lingers After The Lows

Today we will expand our 2008 Playbook to analyze the number of times the S&P 500 has risen or fallen by more than 1% in a day back then as compared to now. That’s our fundamental benchmark of how much investors feel volatility, because any move larger than 1% is outside the fat part of a normal distribution of daily returns from a standard deviation standpoint. There is typically one 1% day a week under normal times, but here’s what happened in 2008/2009 on a monthly basis relative to this year (chart above):

• In 2008, there were a relatively low number of one percent days in April (4) and May (6). It then started to pick up, to 13 in July, 9 in August and 14 in September. The peak was 20 one percent days in October 2008.
• There were just 3 one percent days this past January and 6 in February. There have been 17 so far this month as of 3/25/20 with 4 trading sessions left.
• As we continue to note about our 2008 Playbook, this time around it is unfolding much quicker. Similar to October 2008, this month could be the peak in one percent days.

Regardless, we expect an above average level of one percent days and therefore heightened volatility for at least a few more months. Here is why:

• After the peak in one percent days in October 2008, every month thereafter had 12 or more one percent days for the next 8 months.
• It was not until December 2009 that there was a more common number of 1% days (5), or closer to about one a week.
• The upshot: even after hitting the 2008 low for the S&P in November and then 2009 bottom in March, amplified volatility persisted for another half year, through June 2009. As US equities have experienced of late, remember that extreme volatility both to the downside and upside tend to cluster together.

Bottom line: magnified volatility as measured by our one percent day metric will likely be a prominent feature of the US equity landscape for at least 3-6 months. There won’t always be as wide of daily swings like we are currently seeing, but history says it will still take time for markets to calm down even after stocks bottom.