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The Tell: U.S. stocks have seen volatility on Fridays explode to record levels this year

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So much for “TGIF.”

Since the start of the year, volatility during Friday trading sessions has exploded, transforming what was once a quiet day for markets into one of the most harrowing parts of the week for equity investors, according to an analysis from Bespoke Investment Group.

For example, Friday’s 2.4% pullback for the S&P 500
SPX,
+2.05%

was the fourth consecutive decline of 1% or more to occur on a Friday.

So far, the S&P has logged a decline of 1% or more during 36.5% of Friday sessions through the end of last week — already a new record, according to Bespoke.

The only other years to see such heightened volatility during the final session of the trading week were 1974 and 2008. Both were conspicuously difficult years for equity investors: the S&P 500 tumbled 38.5% in 2008 and 29.7% in 1974, according to FactSet data.

BESPOKE INVESTMENT GROUP

To be sure, realized volatility for U.S. stocks has exploded this year. So far, the S&P 500 has fallen 1% or more during 53 trading sessions since the start of the year, according to Dow Jones Market Data.

By comparison, the average number of 1%+ daily declines over the past 20 years is 23.6, according to DJMD. And there are still two-and-a-half months left in the year.

What’s causing all of this volatility late in the week? Danny Kirsch, head of the options desk at Piper Sandler & Co., listed two reasons. The first is the importance of economic data like the monthly jobs report data, which is released on the first Friday of every month.

“Economic data has been such an important factor this year because it’s such a macro market,” Kirsch said.

Another factor is the surge in options trading for both U.S. equity indexes and single stocks. Weekly, monthly and quarterly options contracts tend to expire on Fridays, which has helped to contribute to the volatility as traders exercise expiring contracts and options dealers move to hedge their risk.

U.S. stocks were up big on Friday, with the Nasdaq Composite
COMP,
+3.89%

clinching its biggest daily percentage-point gain since July by rising 3.4% to 10,675.80. The S&P 500
SPX,
+2.05%

advanced 2.7% to 3,677.95. The Dow Jones Industrial Average
DJIA,
+1.93%

gained 1.9% to 30,185.82.

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