The 8 Most Volatile Sectors

By Marc Davis | May 31, 2012 AAA

Just like people, stocks seem to have their own personalities. Some are volatile, bouncing all over the short term, rapidly up and down in price like a yo-yo. Others are relatively docile and move more slowly, with a small changes in price on a steady pace over long periods of time. Volatility may be caused by a variety of factors - among them are trader emotions like fear and panic, which can cause massive sell offs or buying sprees.

In a jittery, uncertain market with nervous investors, major news events, both positive and negative, can cause big price moves, either down or up. Wars, revolutions, famines, droughts, strikes, political unrest, recessions or depressions, inflation, deflation, bankruptcies of major industries and fluctuations in supply and demand can all cause stock prices to drop precipitously.

Some big hedge funds and private equity firms, with excessive debt incurred to finance stock market investments, have been forced to sell assets in a declining market to pay off margin calls. These large-lot sales also cause big declines in stock prices.

SEE: An Introduction To Sector ETFs

The Sectors
Technology was the most volatile sector, according to a 2009 study conducted by a firm that tracked U.S. stock performance in the S&P 500 index. According to data analyzed by Birinyi Associates Inc., after reporting quarterly earnings, tech sector stocks averaged 4.8% moves in after-hours trading, and 3.4% during regular trading hours during the period studied. Applying the same criteria to track volatility - the average stock price move per sector after quarterly earnings reports - among the other most volatile sectors were the following:

Consumer Discretionary
Included within this sector are retailing, media, consumer services, consumer durables and apparel and automobiles and auto parts. The average change on the trading day for this sector during the period studied was 4.3%.

Energy
Industries in this sector include, oil, gas, coal and renewable energy technologies such as biomass, geothermal, hydrogen, hydro-electric power, ocean energy, solar and wind energies. This sector averaged a change on the day of 3.5%.

SEE: ETFs Provide Easy Access To Energy Commodities

Financial
Banks, brokerage firms, financial services and insurance companies, credit card issuers, financial planners, securities and commodity exchanges form the bulk of this sector. After reporting quarterly earnings in the period studied, the average change in the stock price on the day was 4.1%.

Industrials
Among the major businesses in this sector are aerospace and defense, air freight and courier services, commercial services and supplies, construction and agricultural machinery, diversified trading and distributing, electrical components and equipment, heavy electrical equipment, highways and rail tracks, industrial conglomerates, and rails and roads - freights. The average move on the day after reporting quarterly earnings was 3.7%.

Healthcare
This broad sector includes hospitals, physicians, dentists, medical equipment and supply manufacturers and vendors. The average change on the day of reporting quarterly earnings was 4.4%.

SEE: Investing In The Healthcare Sector

Materials
Companies in this sector pursue the discovery, development and processing of raw materials. Metals mining and refining, chemical manufacturers and forestry products are also included. The average change on the day for this sector was 3.3%.

Telecommunications
The major companies in this sector include phone services, wireless communications services, cable providers, data and Internet services and equipment manufacturers and vendors. The average day move for the sector after reporting quarterly earnings was 3.2%.

The Bottom Line
Over the long term, stock market volatility is about 20% a year, and 5.8% a month. The market typically moves upward over time in small increments. Any deviation in the price of a stock from this expected pattern, either up or down, is the volatility factor. Volatility often frightens investors. The prudent investor prefers a stable, predictable market in which stock prices move as expected and volatility is at a minimum.

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