{"id":83673,"date":"2016-01-12T10:46:43","date_gmt":"2016-01-12T15:46:43","guid":{"rendered":"http:\/\/countingpips.com\/?p=83673"},"modified":"2016-01-12T07:46:54","modified_gmt":"2016-01-12T12:46:54","slug":"stock-market-volatility-in-perspective","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/01\/stock-market-volatility-in-perspective\/","title":{"rendered":"Stock Market Volatility in Perspective"},"content":{"rendered":"
January 12, 2016<\/div>
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By WallStreetDaily.com<\/u><\/a> \"Why<\/p>\n

By Alan Gula<\/a>, Chief Income Analyst <\/em><\/p>\n

By now, you\u2019ve probably heard that the stock market suffered its worst start<\/a> to a year in history.<\/p>\n

The S&P 500 Index (SPX) declined 6.0% in the first five trading days of the year. Going back to 1957 (year of SPX inception in its 500 company form), the next largest decline was a 5.3% rout in 2008.<\/p>\n

Additionally, 2016 has the potential to be far more volatile than 2015. In fact, as shocking as it may be to hear this, 2015 was actually pretty tame.<\/p>\n

The CBOE Volatility Index (VIX) did spike above 50 in August. However, the VIX measures implied<\/em> volatility, which is the market\u2019s estimation of future short-term volatility.<\/p>

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Basically, traders and investors panicked because they hadn\u2019t seen a correction in several years. The sudden scramble for protection in the form of SPX put options caused a super-spike in the VIX.<\/p>\n

Instead of implied volatility, I want to measure how large and dispersed the actual<\/em> price changes were over the course of the entire year. The chart below shows annual realized volatility for the SPX since 1980:<\/p>\n

\"Realized<\/p>\n

To compute realized volatility, I\u2019m taking the standard deviation of the daily price returns for each year.<\/p>\n

With a standard deviation of returns of just 0.70%, it\u2019s not a surprise that 2013 had the lowest realized volatility in the post-crisis era. After all, the Federal Reserve was conducting $85 billion of quantitative easing<\/a> (QE) stimulus per month that entire year.<\/p>\n

QE may not benefit the real economy all that much, but it does artificially suppress volatility.<\/p>\n

The Fed\u2019s third round of bond buying, QE3, ended in October 2014. As you can see, 2015 was more volatile than 2012, 2013, or 2014. However, 2015\u2019s realized SPX volatility was still below the long-term average.<\/p>\n

Without QE in 2016, it wouldn\u2019t surprise me at all if this year was as volatile as 2011, which had a standard deviation of returns of 1.47%.<\/p>\n

Not only does market volatility create opportunities to profit from dislocations, but it also increases the likelihood we\u2019ll make emotional decisions at inopportune times.<\/p>\n\n\n\n
Editor\u2019s Note:<\/strong> The last thing we want to do is act on emotion and sell (or buy) at the worst possible time. Which is precisely why Alan created The Shockproof Investor<\/em>, a one-of-a-kind advisory that can help you navigate these uncertain markets. Don\u2019t fall victim to volatility. Instead, make your portfolio shockproof. Just click here<\/strong><\/a> to learn how.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Diversification helps us dampen our portfolios from volatility \u2013 and it reduces the chance we\u2019ll panic and sell stocks after<\/em> a big stock market decline.<\/p>\n

Investors with\u00a0Treasuries<\/a>\u00a0in their portfolios\u00a0know exactly what I mean during these early days of 2016.<\/p>\n

Safe (and high-yield) investing,<\/p>\n

Alan Gula, CFA<\/p>\n

The post Stock Market Volatility in Perspective<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com By Alan Gula, Chief Income Analyst By now, you\u2019ve probably heard that the stock market suffered its worst start to a year in history. The S&P 500 Index (SPX) declined 6.0% in the first five trading days of the year. Going back to 1957 (year of SPX inception in its 500 company form), […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-83673","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/83673","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=83673"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/83673\/revisions"}],"predecessor-version":[{"id":83693,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/83673\/revisions\/83693"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=83673"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=83673"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=83673"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}