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Volatility Likely to Stay Elevated in September

NEW YORK ( TheStreet) -- August's wild ride is almost over for stocks but September isn't likely to offer much of a respite, according to new commentary from Standard & Poor's.

Not only is September historically the worst month for equities -- the S&P 500 is down an average of 0.5% during the month since 1945 vs. a gain of 0.7% for all 12 months -- but it's also the third most volatile month of the year on a historical basis, as measured by the frequency of high-low percent swings in excess of 10%.

Another indicator that stocks could see more violent swings is the percentage spread for the S&P 500 from its intraday high and low readings in August. The 18.7% reading is the widest seen since the 24.9% spread registered in March 2009 when stocks bottomed out from the financial crisis.

"Heightened volatility is likely to be part of 'the new normal,' in our opinion, whether you rely on ancient history or just point to the recent past," Sam Stovall, chief investment strategist at S&P, writes in research note on Monday. "Looking to the number of times per year in which the S&P 500 advanced or declined by 2% or more in a single day, the market is currently about three times more volatile than it was in the past."

Stovall observes that, from 1950 through 1999, the S&P 500 rose or fell by 2% or more in a single session an average of five times per year. Since 1999, however, the averages have jumped to 12.5 times per year for advances and 14 times for declines.

"Who or what deserves the blame? High frequency trading, hedge funds, inverse and leveraged ETFs, take your pick," Stovall says. "So, if you think the S&P 500 has become more volatile in the past decade, you are correct, and now you can prove it."

After last week's strong performance for stocks -- the major U.S. equity indices delivered their best weekly gain in two months -- Stovall says the market appears to be in the midst of a counter-trend rally that looks promising in the next few weeks from technical standpoint. He cites commentary from Mark Arbeter, S&P's chief technical strategist, who said on Friday the major indices "continue to work" on a potential double-bottom reversal pattern.
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