If you think this has been an extraordinarily volatile month for stocks, even by October standards, you’re right. But maybe it’s just a case of playing catch-up.
“While October is a notoriously volatile month for equity markets, this month is on pace to be the worst one in a decade,” said Jim Baird, chief investment officer for Plante Moran Financial, in a Monday note.
He noted that since Oct. 1, the market has seen eight trading days in which the S&P 500 SPX, +0.78% closed up or down by more than 1%. That comes after a stretch from late June through the end of September that saw no such moves.
And of course there have also been the whipsaw intraday moves, including Monday’s price action that saw the Dow Jones Industrial Average DJIA, +0.88% swing more than 900 points between its session high and low. Stocks moved modestly higher on Tuesday.
Baird urged investors, however, to keep the swings in perspective. Looking at the year to date, he said, the number of sizable moves isn’t out of the normal.
Since 1950, an average year has had roughly 50 days where the market moved up or down 1%, he said, and in comparison, 2018 appears to be in line with those historical averages, as shown by the chart above.
And while Monday’s 0.7% decline for the S&P 500 left the index just shy of a 10% pullback from its late-September record—a threshold that would push it into its second correction of 2018—such pullbacks shouldn’t spark panic either, he said.
“The simple fact is that volatility and market corrections are not uncommon. Equity markets experience a 10% market correction in over half of all calendar years, but tend to end the year higher three out of every four years despite that intra-year volatility,” he said.