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Volatility Typically Picks Up After the Start of a Rate-Tightening Cycle

The S&P 500’s volatility increased in 2015. In addition, history says, but does not guarantee, that it will rise even further. In the past 12 months, the S&P 500 has seen daily closing price volatility exceeding 1% 71 times. This count approaches the annual average of 75 since 2000, after starting the year at nearly half that level.

S&P 500 Daily 1%+ Closing Volatility Before and After Initial Rate Hikes

In the past 50 years, it has been fairly common to see volatility rise, especially after the start of rate-tightening cycles. Indeed single-day closing price volatility saw an average 77% jump during the three months after the first in a series of rate hikes since 1967. In the three months prior to the December 16 rate increase, the S&P 500 experienced 21 days of closing price volatility in excess of 1%. History therefore implies that things could get even choppier in the months to come.

Yet this increase in daily volatility has occurred within a very narrow 52-week high-low price range. At 14%, this differential is 8th lowest since WWII. History shows that those years with narrow high-low ranges recorded the worst next-year price performances and frequencies of advance. In other words, 2016 will likely endure increased volatility, but without much in the way of price appreciation to show for it.

S&P 500 % Annual High/Low Difference

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