Ben Carlson, Columnist

Low Economic Volatility Won't Keep Markets Calm Forever

Stability itself can create instability when investors become too complacent.

January 18, 2018 at 1:00 PM UTC

Ben Carlson is director of institutional asset management at Ritholtz Wealth Management. He is the author of "Organizational Alpha: How to Add Value in Institutional Asset Management."

Don't look behind you.
Photographer: Patricia de Melo Moreira/AFP/Getty Images

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Many predicted that the beginning of last year would finally bring an uptick in volatility. Instead, 2017 was one of the least volatile periods on record for the stock market. The S&P 500 was up every month. The largest peak-to-trough drawdown was slightly more than 3 percent, the lowest on record since at least the mid-1990s.

And this phenomenon isn't limited to 2017. Volatility has been subdued for the majority of the recovery since early 2009. A look at the Sharpe Ratio, a measure of volatility per unit of return above the performance of cash, shows that on a simple 60/40 stock/bond portfolio this cycle has produced some of the best risk-adjusted returns on record since 1950: