To get a handle on how volatile stocks are right now, take a look at a chart of the S&P 500 on Friday. Sixteen different times the index reversed ground and swung 1%, en route to the biggest rally in a decade.
While the comparison is imperfect, the benchmark recently went a whole year without notching 16 days in which it rose or fell 1%, close-to-close. Only twice in a decade-long bull market did the S&P 500 swing more in a month than it did on either Thursday or Friday.
Then there’s the history of giant gains like Friday’s. The last time shares surged that much — more than 9% — markets were smack in the middle of October 2008, the worst month in 33 years, when the S&P 500 finished down 17%. The last time stocks dropped 9% in one session then jumped 9% in the next? 1931, another inauspicious year.
So while Wall Street traders were glad to finish last week on an up note, with the biggest jump since 2008, very few were ready to call an end to the turbulence.
“We tend, in the midst of bear markets, in these crises, to see big, big swings like this, both on the downside and the upside,” said Jennifer Ellison, principal at San Francisco-based wealth-advisory firm BOS. “We get this self-fulfilling prophecy. When markets are down and they start to spiral, everybody wants to run for the exits. And then they think they missed out on the bottom and they run back in.”
More stats to ponder before the start of futures trading at 6 p.m. Sunday in New York. The S&P 500 fell on three days last week and rose on two, with each move exceeding 4%. That also hasn’t happened since the depression, in 1929. The benchmark index jumped 9.3% on Friday after President Donald Trump declared a national emergency to help combat the virus. That followed a 9.5% drop the previous day, when his travel ban and tepid fiscal measures disappointed traders.
Valuations may have set the stage for a rebound. After Thursday’s pummeling, the S&P 500 traded at 15 times last year’s profits. Even if you assume an income decline typical of a recession, the index’s price-earnings ratio would come out to 17.5 — just about average for the last 30 years.
“A day like today is recognition that notwithstanding the issue of both coronavirus and what’s going on with Saudi Arabia and Russia, parts of the market appear to be oversold,” said Mark Stoeckle, chief executive officer of Adams Funds. “People are looking and saying how much of the downdraft has been a result of real economic changes versus fear?”
Something approaching terror was visible on Thursday, when waves of selling sent the Cboe Volatility Index to its highest point since 2008. Turns out the gauge has never hit such an extreme point without the S&P 500 “immediately and sharply” bouncing by more than 10% over the next day or two, according to Nicholas Colas, co-founder of DataTrek Research.
Measures of share turbulence eased Friday while still staying elevated. A day before, the VIX closed above 75, a level surpassed by only three other dates — all of them notched in 2008. The gauge has closed above 40 for a sixth straight session on Friday.
“It’s been a wild ride all week,” Quincy Krosby, chief market strategist at Prudential Financial Inc., told Bloomberg TV. “We saw indiscriminate selling all week long. That’s a good thing because it’s telling you that we’re reaching a panic level. And we always like to say: Try to look for peak panic. Have we gotten there yet? Maybe not yet.”
–With assistance from Lu Wang and Sarah Ponczek.
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