Prior to the Labor Day holiday, you could hear a pin drop on Wall Street as investors across the country (and world) took their final vacations of Summer 2016.  Of course, here at Bespoke we never leave our desks (well maybe once every few years), and during those quiet days in late August, we made sure to take in the relative calm and tranquility in markets, because we knew that in a couple of weeks, things were likely to pick up again in a big way. The recent pick-up in volatility might be a shock to the system for some, but it’s completely normal based on seasonal patterns.

We calculated the average absolute change of the S&P 500 for each trading day of the year going back to 1928.  (There are give or take 252 trading days each year.)  Absolute change just means that down days are turned into up days so we can measure volatility.  The average absolute daily change of a 2% up day and 4% down day would be +/-3%.   Below is a chart showing the results from trading day 1 of the year through trading day 252.  The blue line shows the average absolute percentage change for each trading day, while the green line is the rolling two-week average of the daily moves, which smooths things out quite a bit.

As shown, the first trading day of the year is usually very volatile with an average move of +/-1%, but then it dips down to a range of between 0.6% and 0.8% from pretty much the start of the year through late in the third quarter.  Once September rolls around, we start to see a notable pick-up in daily volatility for the S&P 500.  From early September through early November, volatility picks up more and more.  The most volatile trading day of the year has historically been day 213, which is usually around November 1st or 2nd.  From there, the market’s daily moves get smaller and smaller as we enter the holiday season, and things really die down around Christmas.  The least volatile day of the year is actually the second to last day of the year (day 251), which has historically averaged a change of just +/-0.47%.

If you think the last few days have been volatile, buckle up, because the red dot in the chart below is where we are now — at trading day 176 of 2016.



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