It was looking like YET ANOTHER low volatility week…until Thursday… when finally some fireworks went off. Many attributed it to sabre rattling between the U.S. and North Korea but eventually the market has to come down, and a convenient reason will be found when the time comes. For the week the S&P shed 1.4%, its worst week since March, while the NASDAQ dropped 1.5%. Of note, the Russell 2000 index of small-cap stocks finished out the week 2.7% lower, its biggest one week decline since February 2016.
“From a geopolitical perspective, we understand why the escalation in tensions will have shaken some of the complacency out of investors,” said Eric Wiegand, senior portfolio manager at U.S. Bank Private Client Wealth Management. “And while risks remain elevated from a geopolitical perspective, valuations are not necessarily excessive, though full. But we’re in a low inflationary environment, which can help valuations remain elevated for longer than they would otherwise.”
Even with Thursday’s action we keep seeing stories about “historic” lack of volatility – by this measure the market is the quietest since 1965!!!
The last time Wall Street trading was this quiet, Lyndon Johnson was president, The Sound of Music was the movie to see, and on the radio, the Rolling Stones were searching for satisfaction. According to an analysis by Michael Batnick, director of research at Ritholtz Wealth Management, volatility in the U.S. equity market hasn’t just been in short supply of late, it’s on track for its lowest level in 52 years. “For the first half of the year, the average absolute daily price change, meaning all negative signs are removed, is just 0.32%. If the year ended today, this would be the smallest daily price change since 1965,” he wrote in a blog post. Batnick noted that this kind of environment was unusual, saying it “could change at any time of course, and in fact I would expect it to.”