Surprise! Market volatility not on the rise

All the talk about the stock market being more volatile than ever is unfounded, according to a new white paper released by The Mutual Fund Store. The actual data showing how the markets performed over the past thirty years tells a very different story, said Adam Bold, founder and chief investment officer of The Mutual Fund Store, a registered investment advisory firm with $5.3 billion in assets under management. “The reason that people are shellshocked is that they are getting bad messages,” Mr. Bold said. “This was the summer of fear.” Whether it was the political turmoil in Washington, the Tea Party, or the British Petroleum oil spill, investors have had a lot to worry about — and that has undercut their belief in the stability of the markets, Mr. Bold said. But the numbers paint a different picture. Consider this: The market closed down 48% of the trading days between 1970 and 1989. From 1990 to 2008, the market closed down 47% of all trading days. For this year through August, the market closed down 46% of all days. In fact, the chances that the market will have consecutive down days seem to have decreased over the years. From 1970 to 1989, there was a 25% occurrence of two consecutive down days of trading. From 1990 to 2009, this happened 21% of the time. So far this year through August, there have been 32 days when the market closed down for the second day in the row. At that pace, the year will end with a 19% occurrence of second-consecutive-day drops. The occurrence of one-day declines of more than 1% has increased, however. From 1970 to 1989, there were 35 days with more than a 1% drop. From 1990 to 2009, there were 36 such days. For 2010, there have been 32 such days through August, according to the research. On the other hand, one-day gains are also more frequent. One-day gains of more than 1% on average have occurred 38 days a year since 1970; while so far this year through August they have already occurred on 27 days. “For the past decade, the stock market has closed up more than 2% on average 14 days a year and closed down more than 2% only six days a year,” Mr. Bold and Stacey Schreft, director of investment strategy at The Mutual Fund Store, wrote in the paper.