Did the Fourth Quarter Wake Up a Sleeping Bear?

January 25, 2019 | Julianna Paterra, CFA, CAIA, Research Analyst

Like past bull markets, this most recent one since 2009 has had relatively little daily volatility, which we define here as moves greater than two standard deviations from the mean daily return. Specifically, we look at two standard deviations to the downside during a calendar year basis as compared to its historical average over the last few market cycles. This means the S&P 500 would’ve fallen about 2.2% or more in a single day. The last three bull markets are roughly visualized through the valleys in this negative volatility, which is indicative of the smooth ride up investors have had.

Not surprisingly, the majority of total positive and negative two standard deviation moves have been on the negative side at about 60% of the time since 1990, or in days, about seven trading days per year. In 2018, investors experienced significantly more downside volatility than in recent years; however, within the context of bear market years, this move is not so bad. While this is an interesting story from the data, ultimately macroeconomic and geopolitical developments will undoubtedly determine if this bull market has any life left.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Julianna Paterra, CFA, CAIA
Research Analyst

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