Investors were bracing for big moves today as worldwide coronavirus cases continued to rise. The S&P 500 was last trading down by 1.7%, which would be a big move in any other market environment, but not this one.
Consider this—in the eight sessions prior to Thursday, the U.S. stock market had risen or fallen by at least 4.8% in each of them, a streak comparable only to periods during the Great Depression.
In those past eight sessions, Level 1 circuit breakers were triggered four times, halting market trading for 15 minutes.
What’s more, the S&P 500 closed lower by 7.6% or more on three occasions in that stretch, making them three of the 20 largest single-session declines for the index. That includes a massive 12% drubbing on March 16, the third-biggest drop on record—outdone only by a 12.3% plunge during the Depression and 1987’s 20.5% swoon.
In addition to giant daily moves, this year’s market has broken records for the speed of its decline. It took only 16 trading sessions for the S&P 500 to fall 20% from its highs, the quickest descent into bear market territory ever.
The record-setting volatility in U.S. stocks has shown up in Wall Street’s popular fear gauge, the Cboe Volatility Index (VIX). It spiked from 14.4 before the sell-off began to as high as 82.7, the loftiest close for the index in its three-decade history. On an intraday basis, the VIX reached 85.47, just shy of the 89.53 all-time high from October 2008.
The VIX measures the implied volatility of near-term S&P 500 Index options, and those options are in high demand currently as investors aggressively hedge their positions against further declines.
The spiking VIX sent the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) up by 401.5% in the one month through March 18, while the leveraged VelocityShares Daily 2x VIX Short-Term ETN (TVIX) rallied an astronomical 1,898% in the same period. (Those rallies only put the ETNs back to where they were a year or two ago, reinforcing that they are short-term trading tools rather than buy-and-hold investments.)
It’s not just implied volatility that’s risen dramatically in the past month, actual volatility is also at its highest reading since at least 2008.
Investors often use standard deviation—a statistical measure of how much the market deviates from its average return—to calculate actual, historical volatility. By this measure, annualized volatility spiked to 123% over the past 10 trading sessions and 74% over the past 30 sessions.
During the wildest period of the financial crisis, those figures peaked at 102% and 82%, respectively, while more typical levels of volatility are in the low double digits.
Tough To Match
It goes without saying, 2020’s coronavirus bear market will go into the history books and record books for its breathtaking swings. Only a month in, numerous records have already been shattered, with potentially more to come.
These wild swings the market is experiencing are a reflection of how uncertain the economic and corporate landscape have become as the coronavirus has spread. It’s been nearly a century since a virus has wreaked as much havoc as COVID-19, and when and how this situation is eventually resolved are still very much up in the air; hence, the large gyrations in stock prices.
Still, there is a long way to go before the coronavirus sell-off approaches the peak-to-trough declines of the great bear markets of the past. The Great Depression slide, which retreated 86.2% peak-to-trough, holds the record for the steepest decline.
Most recently, the financial crisis plunge of 2007-2009 resulted in a 56.8% drop.
The current bear market decline of 29.5% is nowhere close to that magnitude, and investors can only hope that the coronavirus can be contained far before it ever reaches those depths.