When the Storm Passes

Most people realize it when a rainstorm starts but they generally don’t notice it when the rainstorm ends. That’s a reflection of how the mind works, and also how rainstorms work. The rain just slowly tapers off and then it’s gone.

The same can be said for market drama. Investors are well aware of it when it’s going on, but when it fades away, they don’t see that as an event. Over the last two weeks, the stock market’s volatility has dropped dramatically.


In the chart above, notice how much the spread between the daily high-low range has narrowed. Yesterday was the 10th day in a row where the S&P 500 closed up or down by less than 1%. In fact, four of the last five days, the index changed by less than 0.1%. Now compare that with the start of the year where 1% days were coming more than 50% of the time. We were on track for one of the most volatile years since the 1930s. The Volatility Index peaked over 30 last month. Recently, it dipped below 14 though it’s back over 15 now.

This is an important generality. The stock market tends to move in two gears—quick and down, and slow and up. This year we went from quick down to quick up. I suspect we’re in for several weeks of quietness.

Posted by on March 29th, 2016 at 10:43 am

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