The month of August was an extraordinarily quiet one, at least with regard to U.S. equity market volatility.
In fact, market volatility hit levels of passivity not seen for over 40 years. This was somewhat out of character, as August is historically the third most volatile month of the year.
CNNMoney reported the following on August 31, 2016:
This year’s August lull was reflected in the CBOE Volatility Index (VIX), which hit intermediate-term lows.
FIGURE 1: CBOE VOLATILITY INDEX, 12-MONTH TREND THROUGH AUGUST 2016
So far, September has more than lived up to its reputation as the fourth most volatile month of the year, with the VIX spiking and a number of major index moves—both positive and negative—over 1% already in the books. Further, according to a recent Seeking Alpha article, “Amazingly, September is the only month with negative monthly average returns for past 100-, 50-, and 20-year time frames.”
FIGURE 2: VIX SPIKES IN SEPTEMBER 2016
While September’s return to volatility is not so surprising, what do investors have to look forward to in October and into early November? October has historically been the most volatile month of the year, typically known not just for market crashes but also for the highest number of daily moves over 1% for the major indexes.
Said Bespoke Investment Group at the end of last week:
FIGURE 3: S&P 500 AVERAGE ABSOLUTE DAILY % CHANGE BY TRADING DAY OF THE YEAR (1928–PRESENT)