-2%+ days aren’t much of a milestone – it’s happened 311 times since 1962 – but it has become an anomaly, occurring only 1/3 as often as its historical mean since late 2011 and just once in 7 months, or almost 150 sessions.
Over the long-term, that’s actually a modest run for consecutive closes faring better than -2%:
- The 1980s had a 746 consecutive session (January 1983-January 1986) span;
- The 1990s had a 525 session run (February 1994-March 1996);
- And the 2000s installed a monster 948 session marathon (May 2003-February 2007).
As far as -2%+ days go: 2012 and 2013 look almost…normal. Almost.
But as Alan Greenspan put it (here it is: the only time I’ve ever quoted him with sincerity), ours has been an “age of turbulence” where -2% down days became commonplace: 11 in 2007, 41 in 2008, 28 in 2009 (that’s almost 25% in 2 of the last 42 years), 10 in 2010, 21 in 2011. And then – 3 in 2012, 2 in 2013 – they seemed almost driven to extinction. Even disregarding 2008 and 2009, the last two years were far below the historical median, creating a low volatility dream state complete with its own biases and market inefficiencies. Misalignment and those misguided assumptions that won’t be put aright until the next major spell of volatility does come to hammer them back into shape.
Whatever the generational averages, “-2% or more” went from almost a sigh of relief in late 2008 to inducing small pangs of alien terror in 2013 and now. Friday and days like it are dislocative: not because any records are set (and without a doubt, days like the Flash Crash are or Black Monday are far more so); but because they send a ripple through the market’s cognitive well-being, diminishing the comforting belief (that many retail investors, at least, just began to take stock in yet again) that there might not be a fat-tailed wolf at the door.
You might’ve just gotten settled in for the new “secular bull market” where years go by without days like Friday; and history would be on your side. But for as long as it lasts and not for the last time: welcome back to the turbulence.
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