How did last year’s equity market volatility compare to history?

Conditions in 2022 were characterized by a convergence of risks. Geopolitical risk skyrocketed as Russia invaded Ukraine in February and China continued its saber rattling with Taiwan, sending commodity prices sharply higher. In addition, the Fed embarked on a tightening policy that would prove to be the fastest and most aggressive hiking cycle in decades, to conquer a long-dormant economic indicator — inflation — that was dominating headlines and dinner table conversations. The result? Volatility.

As shown in the chart above, the S&P 500 experienced intraday moves of at least 1% (up or down) 122 times in 2022, equating to nearly half of all trading days for the year. To put this number in context, it was more than double the average since 1950. It also exceeded the number of +/-1% moves in 2020, a year characterized by a global health crisis and unprecedented economic shutdown. (It’s worth noting that there were more extreme +/-3% moves in 2020, when the economy shut down virtually overnight and subsequently soared back.) Still, the last time daily equity market volatility was greater was during the global financial crisis in 2008.

Of last year’s >1% moves, just over half were declines, reflecting the heightened downside associated with equity repricing to reflect sharply higher interest rates, inflation, and a geopolitical risk premium. For investors, those frustrations were exacerbated by challenging fixed income conditions, rising rates, and negative returns.

The bottom line? 2022 was a historically volatile year for equity markets, stemming from a strong cocktail of geopolitical, macroeconomic, and policy uncertainties. There is a silver lining for long-term investors as we discuss in our accompanying piece.