Volatility Hits a 55-Year Low: Is a Trump Slide Coming?
On Monday, I provided an in-depth analysis of the post-election collapse in volatility, just as the VIX was hitting levels not seen since February 2007.
In that piece, I focused on day-to-day volatility of the S&P 500.
Now, I'm going to take a look at intraday volatility.
I used a very simple but effective formula to make my judgements.
I took the day's range (the high minus the low) and divided it by the prior day's close
Since 1950, the S&P has had an average intraday range of 1.2%.
Since 2000, the average intraday range has been 1.4%.
In 2016, that number was 1.0%… up until the election.
And after the election, it dropped to just 0.6%.
So just as day-to-day volatility dropped, intraday volatility has dropped just as much.
Now here's where things get really interesting…
We've had 125 trading days since the election, with an average intraday range of 0.584% — half the long-term 1.2% average. (as of 1:00 p.m. ET)
The last time we've had a 125-day stretch with so little intraday movement was March 19, 1962!
If you're falling asleep… you have good reason.
And oh yeah — the S&P had a rough time after March 19, 1962. It closed at 70.85 that day, and fell to 52.83 on June 27.
The market's dip in 1962 was deemed “The Kennedy Slide.”
Heck, there was even a Flash Crash on May 28, 1962, with the Dow falling 5.7%.
Could we see a similar Trump slide?
I guess it's possible, mostly because it's not uncommon for a bear market to be proceeded by a low volatility stretch.
To balance that, I'll issue my usual caveat: a sample size of 1 means absolutely NOTHING, and I do this kind of research mostly for entertainment purposes.
And to be even more clear: I'm not rushing to get short the market in anticipation of a big drop.
But for fun, let's look at some historic parallels.
The JFK Library said this about President Kennedy:
John Fitzgerald Kennedy captured the Democratic nomination despite his youth, a seeming lack of experience in foreign affairs, and his Catholic faith.
And in 2016, Donald Trump completely smashed the Republican establishment despite having zero political experience.
Sheer charisma played a big role in each man's victory.
And in both elections, the market rallied after the result.
What about geopolitical tensions?
Kennedy had the Bay of Pigs Invasion in 1961 followed by the Cuban Missile Crisis in 1962.
In 2017, we've got Russia, Syria, ISIS, etc.
That's quite a few coincidences to content with…