The Increase in Market Volatility in One Chart

Look at this 10-year monthly candlestick chart of Fund Ticker QQQ (Invesco’s NASDAQ-100 Index).

QQQ 10 Year Monthly Chart
QQQ 10 Year Monthly Chart

Pre-2019, the monthly price range oscillated between $5-$10 per share (top to bottom of the candlestick), with an average of 0.5 billion shares traded.

In 2019 volatility increased. The monthly price range increased to a $10-$20 range, and the average number of shares traded increased to 0.75.

In 2020 to today, we now see much greater price volatility at $20-$40, with an average of 1 billion shares traded. In March 2020 we saw a record volume of 2.2 billion shares traded with price oscillating $54.68. In January 2022 the price range was $68.13 and 1.8 billion shares traded.

Given that price volatility has not decreased since 2020, it appears that for now such high price volatility is here to stay.

The WSJ recently wrote about how we’ve entered a new paradigm for investing:

The summer of 2020 was the point when the classic “set it and forget it” stock-and-bond portfolio was as good as it got. Investors who didn’t panic earlier that year when Covid-19 crushed stocks cheered the quickest return to a bull market in history. Likewise, long-term Treasury yields plunged to a record low, bolstering bond funds. A classic 60/40 stock-bond split owning that proportion of the S&P 500 index and 10-year Treasury notes earned a respectable 15.3% in 2020.

But there are few free lunches in finance. Squeezing those impressive returns out of a worldwide economic calamity added to the U.S. government’s already considerable bill after the global financial crisis. Federal debt held by the public mushroomed from less than $5 trillion in mid-2007 to more than $21 trillion in 2020. Meanwhile, overnight interest rates were pushed down to a once-unthinkable zero percent, where they would stay until early 2022.

That combination attracted millions of new stock investors: Young people, stuck at home during the pandemic with extra savings, opened brokerage accounts and initially ran circles around their elders. The “buy the dip” mantra that had served investors so well took on an obscene modifier with the acronym “BTFD.”