Part of the angst for investors occurs as a result of poor news reporting. Many of the business channels seem to highlight that volatility is upon us when we witness a 100 point move in the DOW Jones Industrial Average.
Rarely do you hear it mentioned that a 100-point DOW move is not really a big move at all anymore. However, at the DOW’s current index level, a 100-point gain or loss represents a move of just over 0.5%. That is actually a “normal” day — definitely nothing extraordinary for the market.
In January we saw a triple digit move in the DOW Index occur 68% of the time. In February this occurrence frequency dropped dramatically to 33%, and again on Friday March 20th 2015 with another 7 trading days left in the month. We have witnessed this occurrence 80% of the time.
Below is a chart showing the percentage impact of a 100-point move for the DOW going back to 1996.
In the mid-1990s, when the DOW was trading just above the 5,000 index level, a 100-point move for the DOW was close to a 2% daily move. That is nearly four times the percentage change that a 100-point DOW move represents today.
So the next time you hear someone reference 100-point moves as an example of a pick-up in volatility, remember that a 100-point move is not what it used to be.