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Why 2019's low volatility could continue over the next few months

Scott Gamm
Traders Neal Catania, left, and Benjamin Tuchman work on the floor of the New York Stock Exchange, Tuesday, April 2, 2019. Stocks are opening lower on Wall Street as the market pulls back following a three-day rally. (AP Photo/Richard Drew)

The stock market has been pretty sleepy so far this year.

“The quiet start to 2019 is particularly unusual this late in the cycle,” said Jessica Rabe, co-founder of DataTrek Research.

The culprit? The Federal Reserve’s January about-face. And the notion that equities plunged in December, with the S&P 500 (^GSPC) plunging 19.8% from Sept. 20, 2018, to Dec. 24, 2018. A decline of that magnitude sets the stage for a steep rebound. The S&P 500 is up over 14% since the start of the year.

“We gauge volatility by how many days the S&P 500 rises or falls by 1% or greater in a given quarter or year,” Rabe wrote.

From that metric, the first quarter saw only 11 one-percent days, down from the average of 13. For context, there were 64 one-percent days in 2018, compared to the average of 53 since this kind of data became available in 1958.

“In sum, the market should be experiencing more volatility this late into the economic cycle, but it looks set to remain tame through Q2 barring a geopolitical/economic shock or Fed policy mistake,” Rabe wrote.

Helping to confirm the thesis of low volatility in the second quarter was the 1% rise in equities on April 1, the first day of the second quarter.

DataTrek also points to the decline in the 10-year Treasury yield so far in 2019. While the decline triggered a week-long inversion of the yield curve, with the 3-month bill yielding more than the 10-year, lower interest rates make stocks more attractive.

“The 10-year Treasury went from a high of 2.79% in January to a low of 2.37% at the end of March. It’s now back to 2.47%, but still supportive of equity valuations,” Rabe indicated.

Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.

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