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5 Lessons About Volatility to Learn From the History of Markets

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In 2018, the re-emergence of volatility took many market participants by surprise.

After all, aside from a few smaller, intermittent spikes over the course of the current bull market, volatility has largely been in a long-term downtrend since the aftermath of the 2008 Financial Crisis.

Whether there is more volatility lurking ahead this year or whether the markets continue to calm, it’s worth looking at the last century of market history to put these recent bouts of volatility into context.

Learning From the History of Markets

Today’s infographic comes to us from New York Life Investments and it goes back in time to show us that the volatility experienced in 2018 was neither exceptional or unusual.

Here are five important lessons to learn from it all:

5 Lessons About Volatility to Learn From the History of Markets

With volatility back on the table again, investors are re-learning what it’s like to cope with a sometimes tumultuous market.

Higher volatility can be a source of uncertainty for even the most seasoned investors, but a look at historical data over the last century helps to ease these concerns.

5 Lessons About Volatility

Here are five lessons about volatility that we can learn from the history of markets:

Lesson #1: Volatility isn’t new
Volatility isn’t a new phenomenon – and it’s actually as old as the stock market itself. In fact, if you look at historical swings in the Dow Jones Industrial Average, you’ll see that many of the biggest ones were more than 80 years ago.

Lesson #2: Volatility is actually the status quo
In the last century, volatility has been ever-present in the markets, and between 1935 and 2018 the S&P 500 has seen:

  • 4,563 total days with +/- 1% price movements
  • 1,094 total days with +/- 2% price movements

That works out roughly to a 1% price swing every trading week – and a 2% price swing every month. Yet, over this lengthy time period, and after all of that volatility, the S&P 500 has grown by 25,290%.

Lesson #3: Any short-term volatility disappears with a long-term view
Daily price swings can feel like a roller coaster. But if you take a step back and look at the big picture, this volatility is just a blip on the radar.

For example, if you look at a chart of the S&P 500 from August 1990 to February of 1991, you’ll see that daily volatility was rampant. But zoom out to a 10-year chart, and these daily or weekly swings are barely noticeable.

Lesson #4: Volatility can be easily weathered with a resilient portfolio
Given that volatility has been around forever and that it’s extremely common, that makes it fairly unavoidable. Therefore, to weather periods of volatility, it is imperative to build a resilient portfolio by diversifying between different asset classes.

Certain assets are better at weathering periods of volatility than others. Here are some traits to look for:

(a) Low correlation with the market
These assets can zig when others zag, making them a valuable hedge (Examples: Gold, alternative assets, municipal bonds)

(b) Generates cash flow
When times are uncertain, the market puts extra value on assets that are generating real cash flow (Examples: Stocks that pay dividends, or bonds that pay interest)

(c) Defensive or non-cyclical
During uncertain times, there are still companies with stocks that will thrive. They are usually bigger companies with conservative balance sheets and durable competitive advantages. (Examples: Quality stocks in healthcare, consumer staples, telecoms, REITs, and utilities sectors)

Lesson #5: Volatility reminds us that there is no reward without risk

Investing in stocks comes with risks, but it also comes with the best returns over time:

Asset TypeAnnualized real return, 1925-2014
U.S. Equities6.7%
Government Bonds2.6%
Cash0.5%

If stocks offer the best long run gains – and volatility is an unavoidable aspect of investing in stocks – then we must learn to accept volatility for what it is.

Even better, we must learn to build resilient portfolios that can weather any storm, while minimizing these effects.

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Markets

Ranked: Top 10 Single-Day Market Cap Gains

Nvidia broke the record for the largest single-day market cap gains after adding nearly $250B on Feb. 22, 2024.

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The 10 Biggest Single-Day Market Cap Gains

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Since the COVID-19 pandemic, U.S. tech stocks have led in terms of market cap gains, sometimes boosting their valuations by hundreds of billions of dollars in a single day.

In this graphic, we’ve ranked the largest single-day gains ever recorded, using data from Bloomberg.

Top 10 List

The top 10 list includes just 5 companies, and all are based in the U.S.

RankDateCompanySingle-day
Market Cap Gain
(USD billions)
1Feb 22, 2024NVIDIA$247.0
2Feb 2, 2024Meta$196.8
3Nov 10, 2022Apple$190.9
4Feb 4, 2022Amazon$190.8
5May 25, 2023NVIDIA$184.1
6Jan 28, 2022Apple$178.9
7Jul 31, 2020Apple$169.0
8Oct 28, 2022Apple$150.5
9Mar 13, 2020Microsoft$150.4
10Apr 26, 2023Microsoft$148.3

To put these massive gains into context, consider this: As of May 2023, the average market cap of an S&P 500 company was $30.4 billion.

Meta’s $197B Record Didn’t Last Long

On Feb 2. 2024, Meta set a new record for the largest single-day gain after reporting strong quarterly earnings, as well as announcing $50B in share repurchases and its first ever dividend payment.

This record lasted only 20 days, however, as Nvidia’s massive Q4 2024 earnings beat sent it to all-time highs. The firm is now nearing a $2T valuation, firmly placing it among the world’s most valuable corporations.

More on Nvidia’s Earnings…

Nvidia reported $12.3B in net income during Q4 2024, which is 769% higher than the same quarter last year. Revenues are also up 265% from last year, largely driven by demand for its AI chips like the H100 Tensor Core GPU.

Nvidia’s earnings have seemingly shifted the AI craze into another gear, boosting other chip stocks like AMD and Super Micro Computer (SMCI) to double-digit % gains for the day (Feb 22).

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