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Portfolio > Economy & Markets > Stocks

Market Volatility Abounds

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In the wake of equities’ 2007 peak, there has been an abundance of volatility in the market. Tremendous uncertainty spawned by the credit crisis, the spike in energy prices, and declining real estate values has investor conviction waxing and waning from one extreme to another.

Over the last four decades, the S&P 500 Index has posted an average of 58 days per year with an up or down movement of greater than 1%. From October 1, 2007–the S&P 500′s historical high point–through July, 2008, the index has posted 83 such days, implying an annual rate of 100 days and a 72% increase in this metric of volatility. The frequency of bigger sways punctuates the heightened volatility even more: Since October 1, 2007, The S&P 500 has weathered 28 2% days, compared to a four-decade historical average of just 12.

For investors looking to exercise caution and keep money on the sidelines until the big market swings dissipate, counting 1% and 2% days and comparing them to historical trends could be onerous. Another measure of volatility, the Chicago Board Options Exchange Volatility Index (“VIX”), is a popular measure of market volatility. It is calculated by the exchange using forward-looking implied volatility of S&P 500 Index option prices. Referred to by some as the “fear index,” it represents one measure of the market’s expectation of volatility over the next 30-day period.

Since the commencement of the measurement of the VIX in January 1990, it has averaged a closing level of 19.11. In the post tech-bubble days it has been significantly lower–from 2003-2007 the VIX averaged a closing level of 15.98. For comparison, the average VIX level in 2008 thus far has been 23.48, and ended July at 22.94.

Some try to use the VIX for its predictive powers. There is a sizable group that contends that when it breaks 30, a market bottom and ensuing rally are likely. There is even some compelling data that can be massaged to support this conclusion. As for me, I’ll stick to using it to quantify what is already known: these are uncertain times indeed.

The Monthly Index Report for July 2008





S&P 500 Index* -1.0%


-13.7% Large-cap stocks




Large-cap stocks
Nasdaq Comp.*




Large-cap tech stocks
Russell 1000 Growth




Large-cap growth stocks
Russell 1000 Value -0.4%



Large-cap value stocks
Russell 2000 Growth




Small-cap growth stocks
Russell 2000 Value




Small-cap value stocks




Europe, Australasia & Far East Index
Lehman Aggregate -0.1%



U.S. Government Bonds
Lehman High Yield




High Yield Corporate Bonds
Calyon Financial Barclay Index**


-2.7% 5.4% Managed Futures
3-mo. Treasury Bill*** 0.2% 0.2%


All returns are estimates as of July 31, 2008. *Return numbers do not include dividends.

** Returns are estimates as of June 30, 2008.

Chad Leavitt is the director of alternative assets for Memphis-based Sovereign Wealth Management. He can be reached at [email protected].


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