Is The US Stock Market Riskier Than It Used To Be? A Look At Data From 1960s To Present

Between the 2008 financial crisis, the 2020 COVID-19 stock market crash and the 2022 inflation-driven stock market pullback, it may seem like the stock market has gotten riskier than it was in previous decades. On Monday, DataTrek Research co-founder Nicholas Colas said a look back at the historical volatility of the market suggests short-term risk in the stock market is higher than ever.

Over the long term, the performance of the SPDR S&P 500 ETF Trust SPY has been surprisingly steady and consistent. However, Colas examined the historical daily return data for the S&P 500 going all the way back to 1960, focusing on a rolling 250-trading day standard deviation analysis on those daily returns.

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The Numbers: Colas compiled a decade-by-decade breakdown of each decade's average standard deviation of daily price returns.

"The average standard deviation of rolling 250-day daily returns has gone from 0.62 percentage points in the 1960s to 0.82 in the 1970s, 1.0 in the 1980s, then dropped only modestly to 0.84 in the 1990s, hit a peak in the 2000s at 1.25, and only declined to 0.92 in the 2010s," he said.

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The pattern suggests the market has, in fact, become more volatile since the 1960s.

What It Means: Colas noticed much of the changes in the average standard deviations on a decade-by-decade basis has come from severe spikes in volatility during crises such as the bursting of the dot com bubble, the 2008 financial crisis and the COVID-19 pandemic outbreak.

"While US large caps have always been money makers over a long enough timeframe, history also shows that they are also becoming riskier as time goes by," he concluded.

The 2020s are off to a particularly volatile start thanks to COVID-19. The annualized standard deviation of daily returns so far this decade is 1.41, more than double the volatility of the 1960s.

Benzinga's Take: A rise in daily volatility shouldn't concern long-term investors, as long as the market's long-term performance remains strong. So far in the 2020s, the S&P 500 has generated a compound annual growth rate of 7.6%, roughly in-line with the 7.7% growth rate throughout the 1960s.

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