Wall Street 2018: Calm markets often end in stock storm
Was 2017 the calm before the storm on Wall Street?
History says there’s a good chance that a lack of wild price swings and major stock market dips last year could leave stocks susceptible to a bigger drop at some point in 2018.
A major trend on Wall Street last year was how placid the market was. The Standard & Poor’s 500 stock index rose 19.4% in 2017, but the big story was how few scares there were along the way.
The large-company stock index only moved up or down 1% on a daily basis eight times — its tamest year since 1964, according to S&P Dow Jones Indices.
And there were no sizable drops, either. The biggest dip was 3%, the tiniest price “drawdown” since 1995, according to data from Strategas Research Partners, a New York investment firm.
But the calm doesn’t necessarily continue in the new year. In fact, so-called “low-volatility” years “have almost always been followed by some type of correction,” Chris Verrone, a Strategas analyst noted in a report.
Following 1995’s 34% gain and its maximum drop of 3%, the S&P 500 suffered a brief top-to-bottom decline of 8% in 1996, even though it finished the year up 20%.
Overall, after the nine years the large-cap stock index suffered its smallest intra-year drops, the next year saw an average correction, or stock downdraft, of 12%, according to Strategas. And two of those years saw bear markets (declines of 20% or more).
The takeaway: investors should prepare for a stock market dip of sizable magnitude at some point this year.
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