The stock market has done something highly unusual, something that would have been almost unthinkable a year ago: It has gotten boring. Following 12 months of almost unprecedented volatility, the leading market indexes have settled into a routine that might just lull investors to sleep.
And they should be very happy with that. Dullness is a highly underrated virtue for a stock market, one that can provide many different benefits for investors. If last year made investors seasick, this one has been a refreshing dose of Alka-Seltzer.
Volatility has slipped down to levels that many investors feared were gone for good. At the beginning of this month, the 20-day historical volatility of the S&P 500 index dropped down to just 6 percent. Except for a blip in the holiday-season dead time at the end of last year, we haven’t seen volatility that low since the early days of 2007, before the onset of the recession and the financial sector collapse.
August, as we noted in an earlier column, was one of the most immobile months the market had seen in a long time. The S&P crossed the 1400 mark back on August 7, closing that day at 1401.35. And then for the ensuing three weeks, it never managed to crawl above 1420, or sink lower than 1400. The biggest single-day gain was 10 points; the biggest single-day loss was 11 points. Maybe the most emblematic day was August 20, when the market opened at 1418.16, and closed at 1418.13. That’s a loss of 0.03 points, or 0.00002 percent of the market’s value.
In the end, August turned out to have historically low volatility for both the Dow Jones industrial average and the S&P 500. The Dow spent eight trading days in the narrowest band it’s seen over that length of time since 1950. According to Jason Goepfert of Sundial Capital Research, those 17 trading days in which the S&P 500 barely budged were its second-narrowest 17-day trading range in 40 years, second only to a similar pattern in October 1995.
It would be one thing if the market was simply treading water, but what little movement we’ve had has been almost entirely on the upside. The Dow Jones is in the midst of a remarkable sequence, now lasting more than three months, in which it has not had a single day during which it lost more than 1 percent of its value, according to research compiled by the Bespoke Investment Group. That streak started back on June 25, and has held up for more than 65 trading days.
Of course, it hasn’t had a lot of big positive days either, but when you never give any ground back, it becomes much easier to pile up solid returns over the long haul. Since the streak started, the Dow is up about 8 percent, and is back to where it was at the end of 2007, before the collapse. Heading into the final day of September, which has historically been the worst month for stocks, the Dow has put up a gain of about 4 percent in that month alone.
What’s made all this lockstep movement even more surprising is that 2011 had been one of the most volatile years on record. Last year, there were more than 60 trading days in which the S&P 500 moved 2 percent or more. This was a state of events that had risen rather suddenly — as recently as 2005, there were no dates on which that had happened — but it appeared that such volatility was going to be a part of the permanent landscape going forward. Then this summer: crickets.
Of course, the next question is, does this mean anything for the future? We’ve only had 16 such quarters in which the Dow has avoided a 1 percent daily loss since 1900, according to data compiled by Goepfert. And the good news is, he found that such consistent performance tended to lead to more upside. After each of those quarters without a single significant daily drop, the Dow showed positive returns for the ensuing six months, with an average gain of 6 percent.
Past performance, as they say, is no guarantee of future results, and there’s always the chance that the markets are getting ready for a big sag as we head into the heavier trading of autumn. But you can’t get much more soothing than what we’ve seen for the past couple of months: a fair bit of upside, hardly any downside and almost no upset tummies.
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