The Federal Reserve and Volatility: More Bark Than Bite

If you thought last month was volatile, you were on to something. News that the Federal Reserve could soon reduce its support for the economy sent the Dow Jones Industrial Average (DJINDICES: ^DJI  ) barreling up or spiraling down by triple-digit margins in 16 of the month's 20 trading sessions. But at the end of the day, the reaction to the Fed's announcement turned out to be far more bark than bite.

Let me be clear: June was anything but docile for investors. The average daily movement of the Dow was 136 points. This was the highest average since the year 2000, and it handily beat out the runners-up (2012 and 2008), which came in at an average of 115. In addition, as I alluded to, a full 80% of the trading days closed either higher or lower by a triple-digit margin.

Year

Average Daily Move (Points)

No. of Trading Days

No. of Triple-Digit Moves

% of Triple-Digit Moves

2013

136

20

16

80%

2012

115

21

9

43%

2008

115

21

11

52%

2002

102

20

12

60%

2010

101

22

10

45%

2000

97

20

10

50%

2011

95

22

9

41%

2006

80

22

6

27%

2007

79

21

7

33%

2001

75

21

7

33%

2009

67

22

5

23%

2003

66

21

5

24%

2004

48

21

1

5%

2005

42

22

4

18%

Source: Yahoo! Finance

If one were to stop here, it'd be tempting to conclude that last month was the most volatile June on record, or at least since the turn of the century. But, as you may have guessed, there's more to the story.

Take a look at the following table. By these measurements, June was actually a comparatively pedestrian month. Average daily volume was the second lowest in the past 14 years. And it was in the middle of the pack in terms of both the average daily percentage movement and the aggregate change (in absolute points and percentage) between the beginning and the end of the month.

Year

Average Daily Volume

Average Daily Movement

Total Point Movement

Total Movement (%)

2006

3,149,845

0.73%

(18)

(0.16)

2002

2,891,860

1.06%

(682)

(6.87)

2008

2,528,548

0.94%

(1,288)

(10.19)

2009

2,510,945

0.78%

(53)

(0.63)

2007

2,489,343

0.59%

(219)

(1.61)

2003

2,375,167

0.73%

135

1.53

2001

2,326,814

0.69%

(410)

(3.75)

2005

2,283,355

0.40%

(193)

(1.84)

2010

2,246,218

1.00%

(363)

(3.58)

2004

1,957,671

0.46%

247

2.42

2011

1,762,027

0.79%

(155)

(1.24)

2000

1,726,040

0.91%

(74)

(0.71)

2013

1,494,224

0.91%

(206)

(1.36)

2012

1,422,186

0.92%

487

3.93

Source: Yahoo! Finance.

Now, this isn't to say that there weren't individual exceptions last month. UnitedHealth Group (NYSE: UNH  ) , for instance, was up by approximately 5% over the course of June. This has been a particularly hot sector of late given the ongoing developments in health care. As my colleague Dan Caplinger pointed out, last April, the government had to delay a central component of Obamacare. And this past week, it did the same with a second component -- to read more about this, check out Dan's take on it here. Both moves give insurance carriers like UnitedHealth more time to figure out how to comply with the legislative overhaul.

On the downside, alternatively, shares of Alcoa (NYSE: AA  ) plummeted by more than 10% over the same time period. The problem in this regard is the same one that gold stocks like SPDR Gold Shares (NYSEMKT: GLD  ) are facing -- for an interesting take on why so many investors fell for the gold bubble, click here. That is, commodity prices are falling as investors and traders come to the realization that a long-assumed wave of inflation simply isn't materializing. Thus, because Alcoa's fortunes are largely a function of aluminum prices, which have been falling, well, you can do the math.

These performances aside, the overall lesson here is that it sometimes pays to look at the facts behind the media's hysteria. Was June a trying month for investors? Sure. But, at the end of the day, it really wasn't all that different from any other June.

If you're on the lookout for high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.


Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 06, 2013, at 6:35 PM, shineridge wrote:

    The ILLEGAL Fed certainly has pumped up Fraud Street. They've MANIPULATED the market up with "funny money". Money created out of "thin air". "Money" that's nothing nore than "digi-dollars", entries into a computer. NO substance, NO real value. A total SCAM. The Fraud Street "rally" is completely BOGUS. It's a "house of cards" that the slightest breeze will be able to knock over. I wouldn't invest a PENNEY in Fraud Street !!!!!!!!

  • Report this Comment On July 06, 2013, at 7:30 PM, Brodie123 wrote:

    Put options for monday

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2525020, ~/Articles/ArticleHandler.aspx, 12/21/2014 11:58:24 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement