After the S&P 500 Index’s least volatile third quarter since 1963, October has ushered in a wave of volatility: Daily moves in excess of 1% now feel like the norm.
Here’s what you need to know about volatility: It tends to happen when the S&P 500 is in a downtrend and beneath the 200-day moving average. For example, the S&P 500 gained more than 7.0% in the third quarter and did not gain more than 1% in a single day. In contrast, the S&P 500 has gained more than 1% three times already this month, but it is still down 7.2% so far in October.
The 200-day moving average is simply the average close of the previous 200-day trading days. This is a long-term trendline that many investors use to determine if stocks are in an uptrend or downtrend, but history has shown that the most volatility tends to happen beneath this trendline.
“Big moves tend to happen beneath the 200-day moving average,” said LPL Senior Market Strategist Ryan Detrick. “In fact, 23 of the 25 largest one-day rallies for the S&P 500 took place beneath the 200-day moving average.”
As our LPL Chart of the Day shows, the majority of the largest gains and losses took place beneath the 200-day moving average. With the S&P 500 currently beneath this important trendline, more volatility could be in store for investors.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not bank/credit union obligations and are not endorsed, recommended or guaranteed by any bank/credit union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.
For Public Use — Tracking #1-786307 (Exp. 10/19)