Panic in the Daytime Has Been the Stock Market's Mantra in December

(Bloomberg) -- A discernible pattern has occasionally cropped up in U.S. stocks in 2018. It was: let the market work out its anxiety overnight, then calm down in the morning. Lately the script has been flipped.

With more of its threats home grown, daytime has been when the pain is delivered for American equities in December. It happened again Monday, with the loss in S&P 500 futures going from 19 points to as many as 34 between 9:30 a.m. and 10 a.m. in New York.

All told, one-month realized volatility during exchange trading hours is 7.2 points higher than in the overnight session this month, according to Vinay Viswanathan, equity derivatives strategist at Macro Risk Advisors. That’s higher than 94 percent of the time in past five years.

“There are times when we see overnight volatility much higher than intraday volatility -- around Brexit, during the China devaluation crisis -- but now the risk is focused on the U.S., and it’s focused on market hours,” Viswanathan said by phone. “There’s a lot of fluctuation because nobody’s exactly sure what the level of the S&P 500 should be.”

Panic in the Daytime Has Been the Stock Market's Mantra in December

The S&P 500 fell 0.5 percent as of 10:44 a.m. in New York, clawing back from a drop that reached 1.3 percent shortly after the open.
The volatility gap doesn’t mean traders don’t react to news in from Asia or Europe -- they do, but not to the extent they did during the 2016 Brexit vote or the yuan devaluation a year earlier. But it’s receded into the background as traders focused on local developments, according to Ilya Feygin, senior strategist at WallachBeth Capital.

Concerns from the pace of rate increases to the slowdown in corporate profit growth to a trade spat with China have roiled the U.S. markets this quarter and triggered trading patterns last seen seven years ago. The S&P has posted six days when the intraday rally of more than 1 percent turned into a loss by the close since October, the most since 2011.

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