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Inside the Market

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(Scott Olson/Getty Images)
(Scott Olson/Getty Images)

Low volatility, big gains Add to ...

It’s no secret that indexes haven’t been moving that much so far this year. Sure, the S&P 500 is closing in on a four-year high after gaining 12.3 per cent in 2012. But the steps to get there – in terms of daily moves – have been tiny: The biggest gain has been 1.8 per cent and the biggest loss has been 1.6 per cent.

According to Bloomberg News (via Crossing Wall Street) the average daily move is just 0.46 per cent, down from 1.04 per cent in 2011. Last year was extraordinary in terms of daily volatility. But it turns out that this year’s moves are not a return to normal; they’re overshooting, with volatility at its lowest level since 1995.

That might make some investors a touch nervous, with low volatility reflecting a market that is tapped out after more-than doubling over the past three years. However, if you like historical precedents, you might see something encouraging here: 1995 marked the start of an extraordinary five-year winning streak for the S&P 500. The index rose for five straight years by an average of 26 per cent each year. At the end of 1999, the S&P 500 had more than tripled.

Of course, these gains coincided with the bubble in technology stocks, which is unlikely to be repeated. As well, cautious investors continue to point to another potential point of concern in the market: According to Bloomberg, stock trading on the New York Stock Exchange has fallen to its lowest rate in 13 years.

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