The Smallest Range in Five Decades Part 2

On the blog yesterday we broke down how historically tight a range the S&P 500 has been in recently, along with some other interesting stats. As we mentioned at the time, Bloomberg had a very interesting article that noted the S&P 500 was in its tightest 30-day range going back 50 years. Today we will take a closer look at this phenomenon.

Going back the past 30 days, using closing prices only, the S&P 500 has traded in just a 1.54% range. This is the smallest 30-day range since December 1965, which sported a 1.23% range. In other words, the range on the S&P 500 the past 30 days is the smallest in more than 50 years! Things have seemed boring, but that really puts some more color on that lack of action.

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Take one more look at the chart above. The past two times we saw tight ranges close to (but not lower than) the past 30 days were late 1993 and early 2007, both of which lead to eventual significant volatility about a year later. Here is where things get tricky, as the late 1990s had volatility to the upside for several years before peaking in 2000, while we all remember the volatility that 2008 brought with it. This tight range by itself tells us nothing about the market direction accompanying the eventual rise in volatility, only that it is coming.

In conclusion, we will end with how we ended the blog yesterday:

What does this all mean? The bottom line is the lack of volatility we’ve seen lately is truly historic. It is important to note though that it won’t stay this way forever. Non-volatile times eventually transition to volatile times—this has happened throughout market history and we expect it will continue to happen. Then don’t forget that September and October, two of the most volatile months, are on tap. Although we do expect volatitly to heat up later this year, it is important to note this isn’t a reason to panic—as this volatility is actually perfectly normal.

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Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

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The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

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