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September 14, 2011 at 10:07 AM
According to Vanguard, recent stock-market movement is just plain vanilla. In a report released Wednesday, the authors argue that when compared to previous periods of significant events, the volatility of August 2011 should be seen as fairly normal and “not unexpected.”
“Although the stock-market volatility … appears extraordinary relative to the calm of the last year, [data] demonstrates that the levels of market variations today are, in fact, “ordinary” relative to the volatility of other periods characterized by major global macro events,” state authors Francis M. Kinniry Jr., CFA, Todd Schlanger and Christopher B. Philips, CFA.
From July 1992 to August 2011, the S&P 500 Index moved an average of 0.7% per day, explains the report (titled “August 2011 Stock Market Volatility: Extraordinary or ‘Ordinary’?”). It spiked, or doubled, to 1.46% when significant global events occurred.
“As a result, we would argue that August’s volatility in equities, although high and painful to many investors, was not unexpected, given the market environment and the widespread repricing of risk. Thus, in Vanguard’s view, to cast the current environment as a ‘new paradigm’ of volatility is misleading,” the authors add.
In August, a resurgence of the Euro zone debt crisis, the prospect of a slowing global economy, political brinksmanship in Washington, D.C., and Standard & Poor’s formal downgrade of U.S. Treasury bonds from their Triple-A status created a great deal of “uncertainty in a market already struggling to reprice risk,” the Vanguard report notes.
From Aug. 5 through Aug. 30, the S&P 500 Index moved an average of 2.5% per day. This represented a “substantial increase” over the periods immediately prior to the downgrade, the authors explain.
In terms of the number of days the S&P moved 4%, for instance, 2008 saw such volatility for 23 days. This level of movement occurred for seven days in 2009, no days in 2010, and six days so far in 2011. Movement of 1% took place 129 days in 2008, 108 days in 2009, 67 days in 2010, and 46 days in 2011 to date.
