How Volatile Was 2018 Really?

This chart shows the average move size for the Dow Jones Industrial Average and the S&P Index back as far as 1901 for the Dow and 1928 for the S&P.

As you can pretty clearly see, 2018 was about average, although the “mean” was skewed by a few years where the moves were gigantic. But even when you compare 2018 to median move size, 2018 was not that far above normal.

So why did 2018 “feel” so volatile?

Two reasons:

  1. In 2017, volatility shocks seemed to erupt from nowhere! Unlike prior years, volatility was very subdued for lengthy periods, then markets went crazy. As I’ve stated before, this is a sign of fragility, which is a result of the three-year hike in rates.
  2. 2018’s increase in move size from what the move size was in 2017 was the largest ever in percentage terms. For the DJIA, move size went from an average of 0.31% per day to 0.80% per day – an increase of 158%. In the 118 years of daily data I have on that index, the increase has never been larger in percentage terms.

Bottom line is that the market is a little bit more volatile than normal. But it certainly doesn’t feel that way when these volatility shocks seem to come out of nowhere.


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