Pain Points Swelling
There are several medical journals devoted to the study of headaches and pain. “Headache” is the official Journal of the American Headache Society. The “Journal of Headache and Pain” is the official journal of the European Headache Federation. Not to be left out, Asia has their own Headache Consortium. The prevalence of migraines, a serious condition, has remained relatively consistent in the population for the past 30 years: ranging from 12% to 15% overall. The incidence of headaches and agita may have increased for those following the stock market gyrations over the past few months.
If it feels like equity market swings have been larger more recently, they have been. Volatility has indeed picked up over the past few months, indicated by the S&P500 volatility index (VIX) and other measures. This reflects the level of economic uncertainty, which has ramped up, and the increased pricing of risk. The barrage of tariff pronouncements has created headaches for businesses and individuals trying to navigate and plan for the next few months. Individuals have been accelerating transactions ahead of pending tariffs, such as quickly purchasing cars and clothing that may escalate in price. Businesses are doing the same thing, such as we saw with Apple’s supplier shipping 1.5 million iPhones to the U.S. from India by air cargo to avoid potential tariffs. This makes the recent economic data look better than it probably would have been. In fact, while auto sales surged in March, durable goods orders reported this morning increased 9%, but only 0.1% when stripping out commercial aircraft orders. The headache, or hangover, may come in the next several months or quarters if demand dissipates.
Wild Nights (and Days) are Calling
One question that arises is: how common are wild daily swings for stocks, those both positive and negative? Over the last 30 years of daily returns, there have been 43 days in which the S&P500 either gained or lost more than 5%: 19 positive days and 24 negative days. Given that there have been more than 7,500 trading days since April 1995, that is a relatively small number. However, three of the big market movement days have occurred in April of this year.
Many of these prior extreme days occurred during bear markets, such as when the dot-com bubble burst in the early 2000’s or during the global financial crisis of 2008-09. But there were many big positive days mixed in with the down days in 2008, as investors processed policy responses or thought selling had gone too far. There were also some big up days in July of 2002, a year in which the S&P500 fell by over 19%.
On the flip side, several large down days in equity markets were not necessarily precursors to down years. The most recent example is one of the worst single-day losses on March 16 of 2020, when pandemic concerns sent US stocks down 12%. The days following that also saw wild swings as investors tried to make sense of it all. But, The S&P500 ended up recovering that year, up 16%, thanks partly to massive monetary and fiscal stimulus. Aug. 8, 2011, was another painful daily decline for stocks that was not part of a bear market. Investors reacted badly to the downgrade of the U.S. credit rating by Standard & Poor’s, following a Congressional debt ceiling standoff. Stocks lost almost 7% in a single day. Even so, US equity markets ended 2011 flattish. As we have found, much of the long-term gains from stocks comes from compounding lots of small gains. For example, in 2023 and 2024, there were no days in which the markets moved up or down by 5% while the S&P 500 gained over 20% in each year.
As earnings season rolls through, companies are starting to estimate the revenue and earnings impacts from current and potential tariff changes. Procter & Gamble# just today cut its annual sales and profit outlook, citing tariffs and volatility in consumer demand. The maker of Tide detergent expects organic sales growth this year of approximately 2%, which is lower than the 3-5% the company forecast in January. Verizon# and AT&T# both said this week that they will not absorb significant iPhone tariff costs. Others are sure to follow with warnings.
Favorable resolution of tariff and trade issues should serve as an analgesic for sentiment and markets. Eventually. Hopefully the market and tariff headaches start to recede as the year progresses. Higher than average volatility may work in both directions, though, until the outlook improves. Now about that agita…
Two singers with soothing voices share birthdays today: Barbara Streisand, who turns 83, and Kelly Clarkson, who turns 43.
Christopher Crooks, CFA®, CFP® 610-260-2219