Spikes in volatility and daily market drawdowns — like the turmoil investors have experienced this year — are starting to lose their shock value.

This is not because losing money has become any easier, but because more frequent swings in the market have become the new normal. Since the Global Financial Crisis, the amount of daily volatility shocks1 have increased 13x when compared to the previous largest market drawdown in the early 2000’s.
 
Source: Volatility increases are represented by any increase in the VIX daily, as of 12/31/2021. 1Volatility shocks are any increase in the VIX daily greater than five points. Northern Trust Asset Management, Bloomberg. Past performance is no guarantee of future results. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index.

 

This isn’t a short-term trend that just emerged, but something that’s been building for decades. Market movements have become more asymmetric in nature, meaning that the markets are moving higher and lower at a much faster and more extreme pace. We believe investors can avoid this erratic roller coaster ride by incorporating lower volatility strategies into their portfolios.

Source: Northern Trust Quantitative Research, FactSet. Russell 1000 Index. Data from 12/31/1989 to 12/31/2021. Chart shows the realized monthly volatility in up and down markets, as well as the ratio. Monthly volatilities calculated using daily return data in each month. Values annualized and averaged across selected time horizons. Past performance is no guarantee of future results. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index.

About Northern Trust Asset Management

Northern Trust Asset Management is a global investment manager that helps investors navigate changing market environments, so they can confidently realize their long- term objectives.

Entrusted with $999.1 billion in investor assets*, we understand that investing ultimately serves a greater purpose. We believe investors should be compensated for the risks they take — in all market environments and any investment strategy.

*Assets under management as of September 30, 2022




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