Volatility Ticking Up
I have always viewed stock market volatility the same way as deep-sea fishing trips: Sounds tolerable until the ride really gets choppy. Well, many investors may have been reaching for their Travacalm during the past few weeks of market fluctuations. In the US, the S&P 500 Index notched returns of at least +/-1% in magnitude on 12 out of 20 days during March.1 This is more than double the frequency of such returns over the past 30 years. Then, after relatively minor movements the first two days of April, the S&P 500 Index shed over 10 percentage points between 3 and 4 April. Locally, equities and the Australian dollar also saw sharp movements downwards, with the S&P/ASX 200 Index down 6% on 7 April compared to the previous day’s close.2
A tick up in market volatility may leave some investors thinking they need to react with their asset allocation. However, these investors should be aware that volatility is not a signal for expected returns. The data show that current stock volatility is not meaningfully correlated with future stock market returns.3
Market volatility is never pleasant, but investors can take solace in the fact that volatility is a sign of a functioning market. Market prices change in response to new information. Whether it’s economic forecasts, consumer price changes, or tariff policy updates, markets have had plenty of news to absorb in recent weeks. Frankly, it would be surprising, and disconcerting, if we didn’t observe an attendant rise in market volatility.
This article originally appeared in Short N Sweet, a newsletter for Dimensional clients.
Footnotes
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1. Source: “The Home of the VIX® Index & SPX,” Cboe.
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2. Past performance is not a guarantee of future results. S&P 500 Index in USD, S&P/ASX 200 Index in AUD. Analysis of greater than +/-1% return days of the S&P 500 Index conducted by Dimensional. S&P data © 2025 S&P Dow Jones Indices LLC, a division of S&P Global. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.
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3. See Exhibit 1 of The Ups and Downs of Volatility perspectives article.
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