It Was The Best of Markets, It Was The Worst of Markets

It used to be that if you asked someone how the market was doing, their answer would depend on how it had acted over the last few weeks or months.  Nowadays, though, your answer will more likely be a reflection of the last day or even hours.  Over the last two years, the mood has become so volatile that the market regularly shifts from one extreme in sentiment to another. 

One way to highlight this is by looking at the number of days where a net of more than 80% of the stocks in the S&P 500 move up or down in a given day.  These are days where the net differential between up S&P 500 stocks and down S&P 500 stocks exceeds +/-400.  As shown below, in the early part of this decade, +/- 400 days were few and far between.  While the first seven years of this decade never saw a year where even 10% of trading days were +/-400 days, the frequency in the last three years has all been above 10%.  In fact, over the last two years, +/-400 days have made up more than 20% of all trading days.

Some will argue that the uptick in day to day extremes is due to the fact that we were in a bear market.  However, we would point out that in the first three years of this decade we were also in a bear market where the S&P 500 lost half its value, and we didn't see anything even close to the extremes in sentiment that we are seeing now.  For better or worse, the more likely culprit for the uptick in market mood swings is the increased popularity of ETFs.  As more take bets on sectors and asset classes rather than individual stocks, it has become a market where good news lifts all boats, and bad news sinks all ships.

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