The Quiet S&P 500

When it comes to volatility, the last two years have been very quiet ones for the S&P 500 (Index: SPX) .

That realization struck us as we recently updated our volatility statistics for the index. We define “quiet” in terms of the standard deviaton of the day-to-day percentage change in the value of the S&P 500. To qualify as quiet, that day-to-day change has to be less than three-standard deviations, where a single standard deviation represents 0.99% of the index’ value. With respect to the S&P 500′s long-running mean daily change of 0.036% since 3 January 1950, the index stops being quiet if it either rises by 3.01% or falls by 2.94% in value from the previous day’s close.

Since 30 November 2022, the S&P 500 has experienced a total of one “non-quiet” day: 5 August 2024. The S&P dropped by 3.00% on that day, when it was rattled by a sudden crisis caused by a policy mistake by Japan’s central bank. Here’s how we summarized the story:

The S&P 500 (Index: SPX) got rattled on Monday, 5 August 2024, losing a full three percent of its value in a single day.

That’s not a typical day for the index. Before 5 August 2024, there have been just 140 declines greater than 2.94% from previous trading day’s closing value recorded since 3 January 1950. Now there are 141.

And yet, after all that sound and fury to start the week, the S&P 500 had almost fully recovered all that it had lost by the end of the week, as if the index had simply gone mostly sideways during the trading week that was. The index ended the trading week at a level of 5,344.16, just 2.4 points less than where it closed the previous week.

The big story of the week came out of Japan, when the combination of the BOJ’s surprise rate hike combined with bad jobs data in the U.S. to start unwinding the “carry trade” based on the difference between Japan’s low interest rates and higher rates everywhere else.

Markets went on to recover after the Bank of Japan quickly backed off its plans to continue hiking rates to fight inflation developing in Japan. Although it took the rest of the week, as shown in the latest update of the alternative futures chart.

Although the trajectory of the S&P 500 briefly deviated from it in what we’ll call the Japan carry trade noise event, an event others describe as a “big ol’ nothingburger“, the chart indicates stock prices recovered enough to continue falling within the range associated with investors focusing on the distant future quarter of 2025-Q2.

We have to go back to 30 November 2022 to find the previous trading day that qualified as “not quiet”. Here’s our chart tracking the day-to-day volatility of the S&P 500 since 3 January 1950, with the index’ fully updated volatility statistics through 20 November 2024:

How long do you suppose the U.S. stock market’s relative period of quiet might last?

References

Yahoo! Finance. S&P 500 Historical Data. [Online Database]. Accessed 20 November 2024.

Image credit: Microsoft Copilot Designer. Prompt: A stock price candlestick chart with positive and negative changes“.