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Low Votality

I recently read some interesting data on the U.S. stock markets and low volatility in the markets. I always like to stress when talking about volatility is that we don't mind it when it is positive, only when it's negative. The negative side of volatility is what I am sharing with you below.

  • The S&P 500 hasn't experienced a 5% correction for 267 trading days (through 7/19/17), the fourth longest streak since 1950.
  • Year-to-date, the maximum drop in the S&P 500 has been 2.8%. If this holds, it would be the second smallest annual decline since 1950.
    • The smallest is 1995's 2.5% drawdown (LPL Research)
  • On July 14, the VIX closed at 9.51, its lowest level since the 9.48 close on December 23, 1993 (S&P Dow Jones Indexes)
    • There is very little fear in the market by this measurement; plenty of complacency.
  • There has been no shortage of headlines that might rattle investors, including geopolitical, Congressional gridlock, or political drama.
  • Instead, investors have chosen to focus on modest growth, the acceleration in global growth, rising corporate earnings, and still-low interest rates—i.e., the fundamentals.

The chart below lists the previous five time periods with similar periods of low volatility since 1950.

Start Date

End Date

S&P 500 Advance

Trading Days Without a 5% Correction

8/19/58

9/8/59

22.0%

266

11/26/63

6/8/65

18.7%

386

10/12/92

3/28/94

12.9%

370

12/21/94

7/12/96

40.6%

394

6/28/16

7/19/17

21.5%

267

Source: LPL Research, St. Louis Federal Reserve

My conclusions are this low volatility period we are in is not going to predict the next market crash or the next doubling of the U.S. stock market. Regardless of the current political rhetoric or events (note how a very long period of low volatility began just after President Kennedy was assassinated in 1963), the markets will continue to respond to the information available. As to where the U.S. stock market will be 3, 6, or 12 months from now I will leave to more qualified folks like Raymond James Chief Investment Strategist Jeff Saut to guide us. As always, you can access his weekly commentary at https://wealthpartners.website.raymondjames.com/knowledge-center

The S&P 500 is an unmanaged index of 500 widely held stocks that's generally considered representative of the U.S. stock market. The Down Jones Industrial Average (DJIA), commonly known as "The Dow" is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Keep in mind that individuals cannot invest directly in any index. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Eric Griessel and not necessarily those of RJFS or Raymond James.

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