A period of unusual calm has come to a crashing end on Wall Street.
The U.S. stock market saw extreme volatility on Wednesday, a session that not only represented the worst single session for major indexes in months, if not years, but was a rare example of a steep move in either direction. Stocks continued the carnage on Thursday.
The Dow Jones Industrial Average
Â suffered its biggest one-day drop since February in the prior session, shedding 3.2%. The S&P 500
Â lost 3.3% in its fifth straight daily decline, its longest such losing streak since November 2016. The Nasdaq Composite Index
Â fell 4.1% in its biggest drop since June 2016.
The Cboe Volatility Index
Â jumped nearly 44% on Wednesday, a spike that took it back above its long-term average between 19 and 20, a level it has been comfortably below for much of 2018. The VIX, which uses S&P 500 options to calculate expectations for volatility over the coming 30 days, has roughly doubled thus far this year.
Wall Streetâs so-called âfear indexâ saw similar turmoil in the first quarter of 2018, another period when fears over inflation and interest rates spurred heavy selling. In fact, Wednesdayâs jump was the third session in 2018 where the VIX climbed at least 30% in one day. With about 2 Â½ months remaining in the year, this has tied the number of total occurrences seen in all of 2017, according to Dow Jones Market Data. Should it see another session with a gain of this magnitudeâit has never dropped 30% in one dayâthat would tie a record posted in 2011.
In terms of relatively smaller moves for the VIX, 2018 already stands as a record. Wednesday was the sixth session of the year in which it gained at least 25%, the 10th where it gained at least 20%, and the 11th one-day move of 20%, including both rises and falls of that magnitude. All three represent records for a single calendar year.
Wednesdayâs decline represented the first time that the S&P 500 closed with a move of 1%, in either direction, since June 25. That degree of calm is extremely unusual. According to Bespoke Investment Group, the benchmark index saw an average absolute daily change of about 0.24% in either direction over the month of September, well below the 0.7% average seen throughout the bull market.
That a 1% move should appear in October shouldnât come as a surprise. According to Ryan Detrick, senior market strategist at LPL Financial, âOctober should be known for volatility, not crashes, as no month has seen more 1% changes for the S&P 500 index going back to 1950.â Per LPLâs data, there have been 362 such moves in October, significantly more than any other month. The average is about 285, while August, the month with the second-highest frequency of 1% moves, saw 304 between 1950 and the end of 2017.
According to the Stock Traderâs Almanac, October is known as âthe jinx monthâ due to the number of major selloffs that have occurred in the past over the month. There were âcrashes in 1929 and 1987,â the Almanac read, along with âthe 554-point drop on October 27, 1997, back-to-back massacres in 1978 and 1979, Friday the 13th in 1989, and the meltdown in 2008.â
For all Octobers since 1896, when the Dow was created, the standard deviation of the Dowâs daily changes has been 1.44%. That compares with 1.05% for all other months.
Historically speaking, the Dow rises an average of 0.6% over the month, gyrations that make October the seventh-best of the year. Over the past 67 years, October has been positive for the blue-chip average 40 times and negative on 27 occasions.
The S&P 500 typically rises 0.9% over the month, which is also good enough for seventh place, based on historical averages. The benchmark index has the same ratio of positive Octobers to negative ones as the Dow.
For the Nasdaq, October stands as the eighth-best month of the year, based on data that goes back 46 years. It has historically risen 0.7% over the month, and October has been positive for the Nasdaq in 25 of the past 46 years.
For both the Dow and the S&P, October is the best month of the year in midterm years, while it is the sixth-best for the Nasdaq.
Read: Should investors fear October, a historic âjinx monthâ for stocks?
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