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Stocks Are on Track for the Least-Volatile Year Since 1995

The S&P 500 is up 19% year to date. That's great. If we close on December 31 at today's levels, 2013's market returns will be about double the historic average.

But what's really remarkable is how calm and collected stocks have been this year.

Measured by the number of days the Dow has closed up or down more than 1%, 2013 is on track to be the least volatile year since 1995, and the 13th least volatile since 1928:

Source: S&P Capital IQ, author's calculations.

Since 1928, the Dow has closed up or down more than 1% an average of 57 days per year. So far this year, there have been 15 closes up or down more than 1%. If that trend holds, we'll finish the year with about 21 1% days.

Compare that with 148 1% days in 2009, 79 in 2010, and 54 in 2011.

As analyst Eddy Elfenbein wrote yesterday, "I remember back when stocks prices used to, you know, change from day-to-day. Not anymore."

What's this mean going forward? As I wrote last year about the VIX volatility index, very little:

Stock research firm Birinyi Associates once calculated S&P 500 returns 1, 2, 3, and 6 months after the VIX Index (a measure of market volatility) broke 20% below and 20% above its 50-day moving average. The correlation, it found, was meager. The VIX "details, perhaps better than other measures, the volatility of the market today but not tomorrow or the day after," Birinyi wrote.

Market volatility was high in the early 1930s, and it was one of the best times in history to buy. It was also high in the late 1990s, which was one of the worst. Markets were calm in the mid-1960s, and subsequent returns were poor. They were also calm in the early 1990s, and subsequent returns were terrific.

So, a calm market today tells you little about where it will go tomorrow. But, hey, maybe it helps you sleep better. 

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report. 

Read/Post Comments (5) | Recommend This Article (21)

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 August 14, 2013, at 6:40 AM, CraigWPowell wrote:

    Good time to enter to the market was last November, but not many actually did it, remember


    This article was very different:


  • Report this Comment On August 14, 2013, at 9:07 AM, XXF wrote:

    I suspect that it would be too much to hope that falling volatility indicates more efficient use of market information. If the market can move towards a strong form of EMH it would be the best possible result for retail investors.

  • Report this Comment On August 14, 2013, at 9:34 PM, rdwicker wrote:

    It's difficult to define a jinx....

  • Report this Comment On August 15, 2013, at 11:45 AM, oldengineer wrote:

    An interesting article with a subject I have never thought about.

    Thanks, Morgan

  • Report this Comment On August 30, 2013, at 5:27 PM, talotu wrote:

    The more volatile a market, the less willing one should be to invest in it, even assuming the expectation of forward returns is the same.

    This is because past volatility has a clear correlation to future volatility. (Mandlebrot's The Misbehavior of Markets has some good visualizations of this).

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