Earlier on today, I was chatting on the phone with Professor Elroy Dimson, one of the leading (UK) economists looking at (amongst other things) the long term returns from investing. I’ll return to what we discussed in a broader Citywire column later in the week, but a useful gem dropped out of our conversation.
We’re become, rightly, reluctant to say that this time it is different but sometimes we do have to acknowledge that …well things are just a little different this time.
Take volatility. Sure, as an increasingly grey-haired observer I’m used to bonkers days where everything seems to be haywire but the last couple of weeks has struck me as a bit extreme.
To understand this let’s look at the widely used fear gauge, the Vix. Over the last few weeks seen some extraordinary market moves for this volatility index, tracking turbulence in the S&P 500.
As I write this the Vix is crashing down, losing 23% in index value on the day. Currently, it is trading at 57.83, down from 75.46. So, the Vix is down over 17 points in one day, not far off the long term average for the index itself.
But over the last few weeks we’ve seen the following daily increases:
- 26/2 – 27/2 = up 11.34
- 6/3 – 7/3 = up 12.63
- 11/3 – 12/3 = up 21.39
That last increase really is extraordinary. The Vix index increased by 21.39 to 75.46. The numbers below come from Elroy Dimson and map out other big Vix moves over the last 12 or so years. The message? The extraordinary market turbulence in recent days really is quite exceptional in recent history.
Next ten biggest close-to-close VIX jumps were:
- Mon 05 Feb 2018 = +20.01 from 17.31 to 37.32
- Wed 22 Oct 2008 = +16.54 from 53.11 to 69.65
- Mon 08 Aug 2011 = +16.00 from 32.00 to 48.00
- Wed 15 Oct 2008 = +14.12 from 55.13 to 69.25
- Mon 01 Dec 2008 = +13.23 from 55.28 to 68.51
- Mon 24 Aug 2015 = +12.71 from 28.03 to 40.74
- Mon 29 Sep 2008 = +11.98 from 34.74 to 46.72
- Fri 24 Oct 2008 = +11.33 from 67.80 to 79.13
- Thu 18 Aug 2011 = +11.09 from 31.58 to 42.67
- Tue 20 Jan 2009 = +10.54 from 46.11 to 56.65
I’ve also been curious to see how this extraordinary turbulence has impacted key sectors. According to S&P Dow Jones Indices all but three US sector indices notched up losses of more than 20% between February 19 and March 12. Not unsurprisingly energy companies were particularly hard hit given the recent moves in oil. Still, the numbers are quite remarkable. US Small Cap energy stocks are now down over 50%. Perhaps more surprisingly US small-cap industrials are down over 30%.