October 22nd, 2014
by Rob Isbitts, Sungarden Investment Research
In recent weeks, the Dow Jones Industrial Average has had several days in which its value changed by over 100 points. In some cases, the Dow rose at least 100 points in a day, and in other cases it fell by 100 or more. Media headlines have portrayed this activity as "wild," "volatile" and other terms intended to grab your attention and make you believe that there is some rare event occurring before your eyes.
But this is no asteroid from outer space. It's not the birth of sextuplets. And it's not a Chicago Cubs World Series Championship. A move of the magnitude of a 100 point move in the Dow Jones Industrial Average today is something that has been happening over and over in stock market history. In fact, it is almost as likely to happen in any given day than to not happen!
Specifically, with the Dow at around 17,000, a 100 point move is about a 0.60% daily change. Back in the 1980s, a 100 point move would have been a change of over 5% in a single day. But thanks to decades of stock market prosperity, 100 points on the Dow is no big deal.
The punchline: since 1962, the Dow has had a daily change of at least 0.60% over 45% of the time! (Ycharts.com 2014) There are 251 U.S. market trading days a year. This means that on average, about 113 trading days a year result in the Dow changing by 100 points or more, in current terms. Enough said.
So, let's focus on what is really news. When market volatility truly returns, it will be like U.S. Justice Potter Stewart famously said about pornography (paraphrasing): you'll know it when you see it.