After a long summer slumber, volatility has worked its way back into the equity market with gusto over the last week.  Through yesterday’s close, the S&P 500 had seen four what we call “all or nothing days” in the prior five trading days, and that came after a 43 trading day stretch with no occurrences.  An “all or nothing day” represents a day where the S&P 500’s net daily A/D (advance/decline) reading is greater than +/-400.  The last time we saw four all or nothing days over a five trading day period was back in June during the aftermath of the Brexit vote.

The chart below shows the number of all or nothing days for the S&P 500 by year going back to 1990.  With the recent spurt of occurrences, this year’s total is now up to 24, putting 2016 on pace for 34.  Relative to history, this would rank as the sixth most for a given year since 1990, but slightly below last year’s total of 38.  What really stands out about the chart below is how the frequency of all or nothing days has surged over the last decade.  The reason for that can be summed up with three letters – ETF.  As ETFs have become ubiquitous in the last several years, the equity market has become increasingly all or nothing (hence the name of the days).  Rather than buying or selling individual names when looking to gain or lose exposure to the market, investors/traders increasingly just buy or sell ETFs, thereby impacting an entire basket of stocks rather than just one individual name.  While there’s no denying the utility that ETFs provide in their ability to quickly add exposure to a broad asset class or sector, as with any new development, there are always side effects, and one of those is the fact that the market has become increasingly one-sided on a day to day basis.

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