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%.

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

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%.

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%.

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

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%.

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.

Related Articles
  1. Stock Analysis

    If You Had Invested Right After Gilead's IPO

    Find out the present day value of your investment in Gilead Sciences and the amount of shares you would own if you had invested during its IPO.
  2. Stock Analysis

    GE and the Future of Energy Storage

    Find out how energy storage, led by GE, is surging as power companies search for methods to smooth usage and backstop new technologies.
  3. Financial Advisors

    HSAs and FSAs: How to Decide Between Them

    FSAs and HSAs are both excellent ways to help cover a portion of medical costs with pre-tax dollars. Here's how to decide between the two.
  4. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  5. Investing

    What's Better Facebook Moments or Google Photos ?

    Facebook and Google have both released new cloud-based photo sharing services. How good are they?
  6. Financial Advisors

    Breaking Down Medicare Open Enrollment for Clients

    For financial advisors, open enrollment is an important opportunity to be of service to clients, especially when it comes to reviewing Medicare options.
  7. Retirement

    Top Signs You Aren’t Ready to Retire Yet

    Think you are prepared to retire? These warning signs may indicate otherwise.
  8. Savings

    Your Flex Spending Dollars: How to Use Them All

    Your flexible spending account is about to expire. Don't throw money away; here's how you can spend every cent (or roll it over).
  9. Investing

    LabCorp's Challenges Ahead

    LabCorp, the second largest clinical lab company, faces many challenges. Regulatory changes, reimbursement cuts, strong competition and the inability to set price all impact profitability.
  10. Investing

    Will Facebook's New App Leave Siri in the Dust?

    Currently Facebook is testing its new super intelligent virtual assistant, known as, "M". Can this new AI on the block dethrone Apple's Siri?
  1. Is dental insurance tax deductible?

    Dental insurance premiums may be tax deductible. To be deductible as a qualifying medical expense, the dental insurance must ... Read Full Answer >>
  2. Does a Flexible Spending Account (FSA) cover massages?

    Flexible Spending Accounts (FSAs) cover massages for certain medical treatments. These treatments must be approved and prescribed ... Read Full Answer >>
  3. Do flexible spending accounts (FSA) funds roll over?

    An individual can utilize an employer’s cafeteria plan of employee benefits to establish a flexible spending account (FSA). ... Read Full Answer >>
  4. Does CareCredit cover prescriptions?

    In the United States, the health care sector is one of the fastest growing and costliest industries. The demand placed on ... Read Full Answer >>
  5. What are catch-up contributions for Health Savings Accounts (HSAs)?

    The U.S. Internal Revenue Service (IRS) allows an eligible individual with a Health Savings Accounts (HSA) who turns 55 or ... Read Full Answer >>
  6. Who can make catch-up contributions to a Health Savings Account (HSA)?

    An eligible individual who is 55 years or older at the end of his tax year can make additional catch-up contributions to ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
Trading Center