Increasing Day-To-Day Volatility For The S&P 500

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Statistically speaking, day-to-day changes in the S&P 500 (SPX) don’t start to be interesting until the index changes by more than two percent from its previous day’s closing value. But those day-to-day changes get really interesting when the S&P 500 changes by more than three percent from its previous day’s closing value.

That’s because big changes like that don’t happen very often. Going back to 3 January 1950, for the 18,198 days through 27 April 2022 where we have the data to tell how much the index gained or lost from where it ended on the previous day’s trading, just 239 involved the index gaining or losing more than 3.00%. That’s 1.3% of all the trading days in the index’ modern era.

The following chart updates our visualization of that day-to-day volatility, where the dashed red lines roughly coincide with when the S&P 500’s volatility has gotten really interesting.

The index has experienced two trading days in the past week where it has gotten close to becoming really interesting. Friday, 22 April 2022, saw the index fall by 2.77%, while Tuesday, 26 April 2022, saw the S&P drop by 2.81%. We’re pointing these recent changes out because when the S&P 500 experiences big changes like these, they tend to be clustered together in time. Which is to say that once they show up, they tend to keep showing up until the market’s volatility dies down.

They also tend to be roughly balanced between gains and losses, with the number of big daily gains being nearly equal to the number of big daily losses. Today, the market’s big gain/loss ratio is 118/121.

Here’s the question to answer: How long might it be until what looks like a developing volatility cluster for the S&P 500 causes the index to become really interesting by our standards?

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.