Stock Market Volatility in 2017

One of the surprises for 2017 was the relative calm experienced by capital markets. This past year marked significant decreases in volatility – a change for both Canada and the United States.

Looking at the Canadian S&P TSX Composite Index, November 2017 recorded the lowest volatility in a decade. If we tally up the number of days that we saw either a positive or negative move of 2% in the Canadian equity market, the total amount of days would be zero. Comparing this to a year like 2008 where we saw a remarkable 69 days recording a 2% movement in our index, one can see how docile our market has been in 2017 (see Graph 1 below).

Graph 1: Number of Days With Greater than 2% Swing in Return1
(click on the image below to see a larger version)

In a similar fashion, the S&P500 index in the U.S., recorded its lowest volatility since the 1960s2. Not only did this index not post a negative return in any of the months in 2017, this same benchmark did not record any days with returns higher or lower than 2% in any one trading day.

While positive returns and low market swings put smiles on faces, it is important that investors recognize this is not the historical norm. Table 1 provides historical context to how often on average the U.S. market experienced downswings prior to 2017. Ups and downs are a normal and healthy part of capital markets and we should expect and prepare for them to return.

Table 1: Frequency of Historical Losses for the S&P 5003

Frequency of Losses
S&P 500 1928-2016
Per Year
5% Losses 3
10% Losses 1
15% Losses 1 every 2 years
20% Losses 1 every 3 to 4 years

 

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References
1. Chart 1: via Bloomberg
2. https://www.ft.com/content/fe4c064c-c50e-11e7-a1d2-6786f39ef675
3. Table 1: http://awealthofcommonsense.com/2017/01/how-market-crashes-happen/

Disclaimer
The information contained herein is for information purposes only and does not constitute investment advice. Any investment advice provided by Pavilion Investment House will only be delivered pursuant to the terms and conditions contained in an Investment Counsel Agreement. The information provided is based on asset class, security, and investment data and projections that are generated by Pavilion Investment House using 3rd party sources, assumptions, models, and methods that are consistent with investment industry standards and are partially based on specific expectations and assumptions made by Pavilion Investment House. Although Pavilion Investment House takes all steps to ensure that it presents information for which it has reasonable basis and grounds, there can be no warranty, guarantee, or assurance, implicit or otherwise, that the projections contained within this presentation will occur exactly as stated. Where historical statistics are used, they are used for illustrative purposes only. Historical performance is not to be construed as being indicative of future performance. Historical statistics use publicly available index or mutual fund returns (where appropriate) and may not include all fees or taxes associated with implementing an equivalent strategy. © 2018 Pavilion Advisory Group Ltd. No part of his publication may be reproduced in any manner without our prior written permission.