It’s not the intensity of the drop that’s weighing on sentiment, but rather the fact that big down days are getting more frequent and there’s been a scarcity of large rebounds. Three of the six days when the S&P 500 lost more than 1% last quarter occurred since mid-September. And there were only two days when the index gained more than 1% in the quarter. That down-to-up ratio of three is the highest since 1994, data compiled by Bloomberg show.
“We just have a lot of questions that are on people’s minds,” said Brian Donlin, an equity derivatives strategist at Stifel Nicolaus & Co. “You’ve seen a bit more hedging, a bit more risk of a real vol spike.”Trading has remained orderly and few signs of panic-hedging were around during a drop of four straight weeks in the S&P 500 — the longest streak this year — that’s knocked off more than 5% from the gauge. Still, signs show traders are bracing for volatility to linger.
To be sure, that level still gives off few signs of fear. And at least one attribute of panic selling — synchronous share-price swings — is nowhere to be seen. Realized one-month correlation among S&P 500 stocks is hovering at 0.24, down from a reading of 0.29 in late August despite a broad stock-market decline during that time. A rotation out of the likes of tech and into energy has likely kept correlations in check.
A widening strike by the United Auto Workers union against Detroit’s Big Three carmakers and the prospect of a government shutdown only added to the near-term uncertainty.