“S&P Volatility Falls Most Since FDR” . . . said the headline.

Falling volatility has been documented by Birinyi Associates to lead to a rising market over the next 180 days.  The headline I have referred to appeared in an article on Bloomberg that noted that volatility of daily price changes for the S&P 500 has dropped the steepest since 1934.  The S&P 500 gained 41.4% in 1935.  While there may be many factors that will have contributed to that 1935 gain, perhaps the steep drop in volatility was an early indicator that conditions were improving.  Another point made in the article is that the level of volatility is now the lowest since 1995.  1995 is noteworthy in that the S&P 500 gained 34.1%.  Hmmm . . . those two years mentioned, 1935 and 1995, were 96.4% and 91.6% percentile gains going back to 1927.  The chart below ably illustrates that very low volatility has been associated with rising stock markets.  Jeb Terry, Sr. March 28, 2012

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