The Stock Market Likes It Boring

I was playing around with some market data and I found something interesting I wanted to pass along. It turns out that the really big gains from the stock market happen during the boring days.

I took all of the daily closing figures for the S&P 500 from 1932 through 2014. I didn’t count Saturday trading which existed up until the 1950s. In total, I had more than 20,000 daily closes.

Here’s what I found: The S&P 500 rose by more than 1.17% over 1,900 times (about 9.2% of the time), and it fell by more than 1.17% over 1,800 times (about 8.7% of the time). While the down days are fewer in number, they tend to be more severe. If we combine all the days with moves greater than 1.17%, it nets out almost perfectly to zero.

In other words, all those high-volatility days add up to nothing. The market’s entire gain comes on days when the S&P 500 rises or falls less than 1.17%. The rest is just noise.

What’s interesting is that many of those big up days come very near to those big down days. It’s almost as if bull and bear markets are illusions — there’s only a normal market with occasional brief but sharp panics. Even what appear to be long, secular bear markets see their worst pain concentrated within a short window.

Posted by on February 3rd, 2015 at 9:25 am


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