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How does the low-volatility environment for equities over the past year compare to history?

Stocks have drifted lower since March, but it’s been an unusually long stretch without a single-day pullback of at least 2%.

Equity markets have been abnormally calm consecutive days without SP500

The stock market has experienced a modest pullback in recent weeks, as investors have pushed back expectations for Fed rate cuts further than had been priced in since last fall. Despite that modest downdraft in prices, market volatility has remained exceptionally low.

As illustrated above, the S&P 500 index hasn’t experienced a single-day decline of 2% or more in over a year — an unusually long stretch without such a pullback. Since 1980, the S&P has typically experienced a 2% decline on average about every 34 trading days or about once every two months. In fact, the current run ranks as the sixth longest period in over four decades without a one-day decline of at least 2%. Despite the unusual length of the current period, it still easily trails the longest such period of relative tranquility — one that lasted for over three years leading up to 2007.

Could the current period of low volatility continue? It’s certainly possible and not without precedent. Even so, it’s important to remember that these extended periods of calm aren’t the norm. Market volatility is part of investing in stocks, and single-day declines of 2% or more aren’t unusual. Investors benefit from the strong long-term return of stocks, but the ride isn’t normally as smooth as it has been recently. At some point, volatility will return. That doesn’t diminish the value of investing in equities but does illustrate the importance of remaining appropriately diversified in a manner consistent with one’s goals, investment time horizon, and risk tolerance.

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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