The stock market’s 1930s-style behavior

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Barbara’s post last week about the spectacular (and historic) proliferation of days in which the S&P 500 has moved 5% or more this year raised a couple of questions. The data she cited just went back to 1950, so one question was, how does this year’s volatility compare with that of the 1930s? Another was, why the heck is it happening? Wrote Matthew Yglesias:

I don’t think I’ve seen anyone even seriously attempt to explain why this would happen. Stock market crashes are, obviously, not unprecedented. But never before have they entailed this kind of wild, up-and-down day-to-day swinging. What’s different now?

To answer one and possibly both, I asked Standard & Poor’s for the daily closing price of the S&P 500 as far back as I could get it. They sent me the numbers back to 1928, and I separated out all the days where the index moved (up to down) 5% or more. I was measuring closing-price-to-closing-price, so my measure missed out on lots of intra-day moves of 5% or more. But for the sake of historical comparison I think it’s just as useful. What does it reveal? That this year has seen more big one-day moves (17) than any year since the 1930s, but it’s still nowhere near the Great Depression annus horribilis of 1932 (32) and still slightly trails the big comeback year of 1933 (19):

Graphic by Feilding Cage/

Graphic by Feilding Cage/

In light of the 1930s evidence, I think the answer to Yglesias’ question is simply that these are spectacularly uncertain times. Not quite as uncertain as 1932, when it really seemed as if capitalism might be done for. But closer than anything we’ve seen since the 1930s. It’s awfully hard to say at the moment what shares in publicly traded corporations, especially financial corporations, might be worth. A lot of them might be worth nothing at all. And their value or lack of value will in many cases depend on political choices. So it really shouldn’t be a big surprise that markets are struggling to settle on what the correct prices might be.