Up and Down

This stat from @SentimentTrader blew me away:

“The S&P 500 fund, SPY, has been up at least 0.5% for 5 straight days. That’s tied for the longest streak since its inception.”

I wasn’t taken aback because of how strong the markets have been recently, but that streak of five days sounded really small to me. I almost couldn’t believe it was right. But after looking at the data, the shock wore off.

The S&P 500 has gained >0.5% on 28% of all days (going back to 1993), so the likelihood of this happening 5 straight days is ~0.05%, or once every 2,000 days.

The other times this happened was 2011, 2009, 2008, and twice in 1999. With such a small sample size, there is no reason to think we know what happens next, but one thing that we know for sure is that all of these streaks occurred during periods of above average volatility.

Vol exploded on the way down and naturally has subsided on the way up. Although the market isn’t as chaotic as it was in the first quarter, you may be surprised to learn that the market is still swinging around more than it usually does.

The average absolute rolling 20-day change of the S&P 500, which for all intents and purposes is the same thing as standard deviation, hasn’t been below 1% since the end of February. For context, the median is 0.66%.

Investors have calmed down much more than the market has. The reason for this, stating the very obvious, is that volatility feels much better on the way up then on the way down.

As I’m writing this, the streak has ended, but the large swings continu. Stocks fell more than 1% today.

One of the silver linings to volatile markets is that they force us to learn or relearn our true tolerance for risk. And even if you’ve invested through periods like this before, sometimes we need a reminder of what risk feels like. 2020 has delivered this in spades.

 

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.