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On Friday afternoon at about 3:45 the Dow Jones was down well over 900 points. I was on the phone with a client and when the call ended, my screen flashed that the index had closed down only -357 points. The Dow Jones had rallied over 600 points in 15 minutes. Of course, I knew volatility had spiked, but this still seemed extreme. A look at DJIA intraday chart 1 below shows the huge index changes that occurred in less than an hour on Friday: -665, +705, -526, +537, -550, and +644. The benchmark S&P500 had declined 12.76% in just 7 days as the news about the Coronavirus worsened. Still, the rapid rallies and declines on Friday raises the question of whether there are other market forces at work other than just investors selling stocks.

The table below and charts that follow show the increasing volatility during the 7-day period. We chose to look at moves that occurred during periods of 1 hour* or less on an intraday basis. We measured each day’s moves in 2 ways; (1) the average of the absolute short term moves and (2) the number of short term moves that were 1% or greater. The progression is astounding in just 7 days. On the first day of the 7-day decline the average of the short term moves was 0.39% and there was 1 move 1% or more. On Friday, the average of the short term moves was 2.40% and there were 5 moves of 1% or greater. In fact, there were 5 short term moves on Friday of greater than 2%.

We have no conclusion as to why the number and size of the short term moves has accelerated, but one could reason that it is not the actions of large institutional buyers and sellers that are moving the market in opposite directions so quickly. Although we do not have an answer, one could speculate that a number of large algorithmic programs have now converged on similar strategies and pointing in the same direction as the decline has progressed.

Why is this important? It is important because clients may need to take this into account when they assess their next moves based on the size and speed of the recent correction. They need to ask if this move is based really on fear or the possibility of economic slowdown or does it have more to do with the current market structure and its participants.

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