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Interesting #s...

If one knew at the beginning of this year the sovereign debt crisis would worsen and bring the European Union to the brink of collapse, the U.S. would lose its AAA credit rating, Japan would be hit with a 9.1 magnitude earthquake and tsunami, and social uprisings would overtake the Middle East, where would you have guessed the S&P would be right now? Probably not UP +27bps, which is where we closed yesterday.

 

This is remarkable, not just because of everything we’ve endured, but because at no other time over the last 84 years has YTD S&P performance been this close to flat at this point (trading day #236). In fact, we’ve crossed the positive/negative YTD line 16 times already this year.   Furthermore, it is interesting how tight of a band we’ve been in all year in terms of YTD performance. At the highs, the S&P was up 8.45% YTD. At the lows, the S&P was down 12.60%. That is a range of 21.05%.

 

While this is by no means the tightest range we’ve ever seen, it is quite unique in the context of the level of volatility we’ve realized YTD (23.5%). So, we took a look at the ratio of realized volatility vs. the range of YTD performance for each year since 1928. This helps gauge just how much this year has been a game of bumper ball, and if previous years that exhibited similar behavior provide any insight into what the market is trying to digest and how it behaves going forward.

 

What did we find? There were only three years that have exhibited a higher ratio of realized volatility relative to the band of YTD performance – 1939, 2000, and 2007. I think most are probably familiar with what soon followed, but in the year after these instances of intense oscillation, the market was down 15.1%, 13.0%, and 38.5%, respectively.

 

 

YTD

YTD

 

Realized

 

1 Year Forward

Year

High

Low

Range

Volatility

Ratio

Performance

2000

3.96%

-13.89%

17.85%

22.23%

1.24

-13.04%

1939

0.68%

-20.67%

21.36%

25.91%

1.21

-15.09%

2007

10.30%

-3.16%

13.46%

15.99%

1.19

-38.49%

2011

8.45%

-12.60%

21.05%

23.46%

1.11

?