Numbers, the Law of Averages, and the Dow Jones

As we wrote last week, volatility is back.  Two weeks ago today, August 20, saw the Dow Jones Industrial Average (DJIA) dip by 358 points.  Since then the stock market has taken investors on a wild ride.

We were wondering what the average daily price movement was during the past couple of weeks, and after a little research and some Excel wizardry, got the answer:

  • The last 10 trading days (August 20 – September 2) have seen an average move of 356 points in the DJIA.

Then we wanted to see what the DJIA did the 10 trading days prior to August 20:

  • From August 6 – August 19, the two weeks prior to this recent two-week period of volatility, the DJIA moved an average of 96 points per day.
  • The average daily price movement these last two weeks is more than 3.7 times the average price movement the prior two weeks.
  • Even more telling, from August 6 – August 19, there were 6 days that the index moved less than 100 points. From August 20 – September 2, there was only one such day.
  • During the month of July, the DJIA moved an average of just under 103 points per day, or less than a third of the average daily price movement these last two weeks.

DJIA Avg Daily Price Movements

(Another interesting tidbit that seemed to escape mention by the talking screaming heads on TV: despite last Monday’s big drop, both the DJIA and the S&P 500 closed up for the week ending August 28.  The DJIA was up 1.17% while the S&P 500 was up 0.95%.)

Eventually we will revert to the mean.  We are still not convinced that interest rates, China’s growth rate or currency movements are that big a deal.  Put another way, we do not think those things are enough to derail the slow “plow horse” economic improvement domestically.

We urge everyone to take a long-term view on investing and keep a cool head during bouts of market volatility.  We will continue to monitor the markets, economic conditions and our clients’ portfolios.  If you have any questions, concerns or comments, please do not hesitate to contact us!

Tagged , , , , , , ,
%d bloggers like this: