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08/07/2024 — Equity markets were unusually calm in the first half of 2024, but that has changed abruptly over the last several weeks. The volatility on Monday, August 5, made headlines, with the S&P 500® Index falling 3.0% on the day (the worst day for the U.S. stock market benchmark since September 2022), but much of the turbulence has been brewing since last month.

Stock markets began to waver around July 10, with no specific catalyst for the volatility. Any volatility we had experienced over the last year was usually sparked by changing expectations for interest rate moves. But more recently, investor sentiment began a swift and decisive turn away from large-cap technology stocks—especially the “Magnificent 7” stocks—and toward other cyclically-sensitive parts of the market, such as industrials and materials.

From the July 10 peak to month-end, the Mag-7 stocks fell about 10% collectively, while the S&P 500 declined closer to 3.5% overall. In contrast, the S&P 500® Equal Weight Index increased nearly 3.5% over time. (With the S&P 500, the largest stocks by market capitalization can have an outsized influence on the index’s overall performance. The equal-weight index can give a different picture of stock market participation.)

In other words, stock volatility returned unexpectedly with the rotation toward different parts of the market. The rise in volatility is best seen in the CBOE Volatility Index (VIX), which measures stock investors’ expectations of market volatility. VIX spiked from a benign 12.8 on July 10 to an intraday high of 19.4 on July 31, closing the trading day at around 16.3.

CBOE Volatility Index (VIX) average by calendar year 1994 to 2024 (Jan to Jul.)

As U.S. stock markets opened on August 5, the VIX spiked to an intraday high of 65. This was the highest level for the volatility index since the early days of the pandemic, as signs of a slowing economy and a rapid unloading of “carry trades” spread fear among market participants. Ultimately, the VIX ended the day at 38, ranking in the 96th percentile of daily closing values for the volatility index since 1999.

The calm among stock investors earlier this year was pleasant while it lasted. Still, the latest surge in volatility serves as a reminder of the fleeting and unpredictable nature of the market. As the accompanying chart illustrates, 2024 had been shaping up to be one of the calmest years for stocks; for the year to date through July, the VIX average was well below its 30-year average and at its lowest level since 2017. This occurred despite different economic signals that typically spark volatility, including a declining Leading Economic Index, contraction in the ISM Manufacturing Index, and a yield curve that’s been inverted for more than two years.

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Author(s)

Mark Hackett, CFA, CMT

Chief of Investment Research, Nationwide Investment Management Group

Mark Hackett is the Chief of Investment Research for Nationwide’s Investment Management Group, bringing more than 20 years of experience in the asset management industry to the role.

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Except where otherwise indicated, the views and opinions expressed are those of Nationwide as of the date noted, are subject to change at any time and may not come to pass.

S&P 500® Index: An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries; gives a broad look at the U.S. equities market and those companies’ stock price performance.

S&P Indexes are trademarks of Standard & Poor’s and have been licensed for use by Nationwide Fund Advisors. The Products are not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s does not make any representation regarding the advisability of investing in the Product.