Volatility: The New Normal?

Written by: Global Thought Leadership | March 09, 2018

Source: Bloomberg, March 7, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.


The Bottom Line

  • The outbreak of volatility in February, coming after nearly two years of relative calm, came as somewhat of a shock – at least in emotional terms.
  • Part of the upset came from intra-day movements of prices – the spread between each day’s high and low.
  • The intra-day moves of the Dow Jones Industrial Average (“the Dow”) is a useful example. February 5, 2018 saw a swing of over 1,596 points, nearly three times as large as the previous day’s range, and over 50% larger than the intra-day range on October 10, 2008, in the midst of that year’s global financial crisis.
  • But in percentage terms, the record for intra-day moves for the Dow was still made in 2008; the Dow moved just over 12% on October 10, vs. 6.6% on February 5, 2018.
  • The CBOE VIX Index (“the Vix”), on the other hand, made its largest intra-day move for the decade, in points, on February 6, 2018 – along with its largest percentage move – 93%.
  • The percentage figures for the Vix, however, are particularly misleading because the index itself measures volatility, not just price. That’s why the intra-day high for the Vix was on October 24, 2008 (89.5), not on February 6, 2018 (50.6).
  • The bottom line: Volatility isn’t always what it seems.  That’s all the more reason to take volatility into account when making investment decisions for the long run, and to make sure that any investment plan is sufficiently diversified.


All data:  Source: Bloomberg.


Diversification does not guarantee a profit or protect against loss.

IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.