Sunday, May 23, 2010

Markets Are Increasingly Volatile

Recently, investors seem to be pulling the sell trigger first and asking questions later during down market days in the stock market. At one time in the not to distant past investors believed 1% daily moves in the market were rare. Now 1% daily moves seem almost commonplace. Now the new standard is 2% daily price swings.

According to Standard & Poor's:
"the number of days in the past year that the S&P 500 fell by 2% or more in a single day began to accelerate. Indeed, May 4 and May 6 were the two most recent times the 500 dropped 2% or more in a single session. In the past 12 months (ended May 14), the 500 fell by 2% or more 13 times vs. an average of seven per year since 1970. Of course, these readings are nowhere near the peak of 54 declines experienced in mid-2009 as a result of the megameltdown in equity prices."
The quick sell mentality of investors seems to be driving higher volume on down days as well. Year to date through May 14th, S&P reports the volume of trades in S&P sector ETFs on down days equals 278.4 million shares. The volume on up days is 177.1 million shares. As a result the percent of down volume to up volume is 61%.

This higher volatility is an aspect of investing that investors need to be aware of going forward. A key focus of the investing approach utilized at HORAN Capital Advisors is to construct the foundation of ones portfolio in a way that minimizes this volatility.


Learning to Live with Increased Volatility
Standard & Poor's
By: Sam Stovall
May 17, 2010

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