Monday, January 26, 2015

Why Is the Market Getting More Volatile?

Nearing the end of the first month of 2015, the S&P 500 Index has, in the larger sense, not budged very much this year; it's down just 0.3 percent so far. But anyone who watches the market on a day-by-day basis knows that we've seen a lot of big ups and downs along the way.

The S&P has moved by at least one percent on a third of all the trading days this year. That's more than twice as often as the number of high-volatility days we saw last year, which the S&P was famously smooth.

In a way, this increased volatility is to be expected. According to S&P Capital IQ, the longer a bull market runs, the more high-volatility days it sees. In year three of a bull market, there are, on average, 31 days of high volatility, increasing to 44 by year six. We are headed for year seven of this one, which tends to have an average of 55 high-volatility days. So fasten your seat belts - it could be a bumpy ride.

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