It isn’t just you. The stock market has become more volatile over the years, according to a new method for measuring its gyrations, and that’s making life more of a challenge for investors as they attempt to navigate the ups and downs.
In a Tuesday note, DataTrek Research co-founder Nicholas Colas highlighted a volatility measure that starts with daily returns on the S&P 500 SPX, +0.97% for any given year and adds them up, but turns the negative days into a positive sign.
The resulting total absolute daily return mimics what a day trader with 100% knowledge of the next day’s market direction could make by simply going long or short at the previous day’s close, Colas explained, while also offering a measure of what a buy-and-hold investor sees in terms of daily perceived stock market volatility (see chart below).
Colas and company then did the math for the S&P 500 SPX, +0.97% going back to 1958 and found that absolute daily return volatility has risen steadily over the years. Here’s what he found, broken down by 10-year periods in the table below:
Decade Average absolute daily return volatility 1958-1967 112.3% 1968-1977 154.9% 1978-1987 177.4% 1988-1997 148.4% 1998-2007 207.5% 2008-2017 178.0%
The annual average for the entire period is 167.6%, with the last decade below that mean being 1988-1997, Colas noted, also emphasizing that 2018’s absolute daily returns totaled 187%, well above the long-run average.
“U.S. equities are becoming structurally more volatile,” he wrote. “Absolute daily returns capture a unique signal: how much stocks ‘churn; in a given year. When you look at the data across decades, the upward pattern is clear.”