The Rise of Donald Trump and the Collapse of Volatility, by the Numbers
With the VIX hitting 9.69 today — a level not seen since February 2007 — I wanted to get an idea of just how slow the market is moving.
To do so, I analyzed daily S&P 500 price data going back to 1950.
Since November 9, 2016, the first trading day after President Trump's victory, the S&P has moved an average of 0.3%* per day.
(*percentages expressed in this article represent the daily percentage change expressed on an absolute basis. So if the market moves -1% on Monday and +1% on Tuesday, the average move is 1%)
But going back to 1950, the daily average move is 0.7%!
And here's another funny stat.
The average daily move in 2016 BEFORE Trump's victory was 0.6% — pretty close to that long-term 0.7% average.
So my 6th grade math proves that volatility collapsed after the election, even though we've had no shortage of market-moving news, between the Fed, French elections, Syria, North Korea, Trump/legislation, etc.
Now let's look at 1% daily moves.
We've had 122 trading days since the election. And the S&P has moved 1% or more exactly 5 times.
That's 1 out of every 24.4 days.
In 2016, before the election, the S&P was moving 1% once every 4.7 days.
Long term, the S&P had 1% moves every 4.9 days.
So we used to have a big move once a week.
Now we're getting them once a month… if we're lucky.
But what's really interesting is that we also saw an extended period of low volatility prior to the last bull market peak on October 11, 2007 — though it wasn't as quiet as this one.
From January 1, 2007 to October 11, 2007, the market moved an average of 0.5% per day.
2006, a remarkably sedate year, also had an average daily move of 0.5%.
So are we seeing parallels between 2007 and 2017?
Maybe.
Just remember this: if you're drawing parallels between 2007 and 2017, you're talking about a sample size of exactly 1.
That's not exactly scientific.
So who's to blame for the lack of volatility?
ETF's?
Runaway algos and high frequency trading programs?
Trump himself?
Newly confident CEO's that love slamming the buyback button?
The Alphabet Soup Gang? (the Fed, ECB, BoJ, BoE, etc.)
All of them?
If you have the answer, let me know when I wake up…