Until we achieve our goal of an endless summer, we are stuck with seasonality. Though still a week or so away (officially), fall is pretty much here. It feels a bit cooler in the mornings on our way into the office. The football season is in full swing. The leaves have started to change color. Butternut squash soup was on the menu at one of our favorite restaurants we visited over the weekend.
And market volatility has returned!
The chart below shows the daily percentage change for the Russell 3000 Index (the 3,000 largest companies in the U.S. as measured by market capitalization, i.e., pretty much the whole U.S. stock market) for the last two months:
Notice the size of the last three orange bars on the right side of the bottom panel … those are the percentage moves in the Russell 3000 for the last three trading days as of this writing (Friday September 9th through Tuesday September 13th). They are obviously much bigger than the rest of the bars throughout the summer. Hence, the return of seasonal market volatility.
Our best guess (and it is nothing more than a guess) is that market volatility will be with us for some time. Consider the chart below (brought to us by Zerohedge & JP Morgan’s Marko Kolanovic):
Clearly volatility (which can be defined as the variation of prices over time measured by the standard deviation of daily returns) is higher in the fall — September, October and November — than other time periods. With the presidential election season in full swing and the uncertainty around when the Federal Reserve Bank may raise short-term interest rates, this year may very well fall prey to the seasonality of volatility once again.
But don’t let that get you down … pumpkin spice lattes at Starbucks are back!
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