Changes

The past 12 months are a perfect sample to support Mandelbrot’s claim that “large changes tend to be followed by large changes, of either sign, and small changes tend to be followed by small changes.”

Using rolling 30-day periods, from January 2017 through January 2018 there were 120 readings where the S&P 500 did not have a daily change of greater or less than 1%. To put into context how quiet last year was, from 2000-2016, there were only 59 readings where the S&P 500 did not rise or fall by 1% over the previous 30 days.

Small changes were followed by small changes, until they weren’t. The S&P 500 went 94 days without closing up or down 1%, but in the last 17 days, it has done this 10 times.

Another way of saying large changes follow large changes is that volatility tends to cluster. For example, look below at the 25 best (green) and 25 worst days (red) since 1970. What you’ll notice is that the red and the green tend to happen very close to one another. Furthermore, every single one of these 50 readings has occurred in a period of above average volatility.  The average 30-day standard deviation since 1970 is 0.92%. The average 30-day standard deviation of the 50 most extreme days is 3.2%.

Today was another wild ride for stocks. In the thirty minutes following the FOMC minutes release, the Dow rose 158 points, only to fall 470 points into the close. Nobody knows when or how or why stocks will return to a period of small changes, but it’s very clear what sort of regime we’re in today.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.