For an index that wound up going virtually nowhere in the full year 2015 (+1.4% total return in 2015; and only positive because of dividends), the S&P 500 certainly had a bumpy ride along the way.
In attempt to quantify that short term volatility in some simple terms, we reviewed intra-day high, lows, and closing values of the S&P 500 Index over the course of the year and calculated differences in the short-term highs and lows on a one-week basis, two-week basis, and monthly basis to see just how bumpy the market was.
- On a one-week basis, the average difference between the market high and market low was 2.8% within each of the 52 weeks.
- On a two-week basis, the average difference was 4.0% within each of the 26 two-week intervals.
- On a monthly basis, the average difference was 6.0% within each month of 2015.
These are surprising high intervals. In 2015, an average market move of 6% equaled roughly 120 points in the S&P 500 Index and 1,000 points in the Dow Jones Industrial Average. But considering the market ended the year in virtually the same place it started, these rather significant short-term changes had no lasting impact on the full-year return.
What does this mean for investors? While volatility can create some significant short-term changes in valuations, in the long-run, the changes are often market “noise.” Prudent investors would be wise to stick to their long-term investment planning and avoid the temptation to overreact to continued market volatility.