There was a time when a 2% move in a large company’s shares was worth a phone call. Today, it barely registers.
Last month, Alphabet fell nearly 13% in a single session after search and advertising revenue missed expectations, erasing around $500bn of market value, its largest one-day loss on record. But the all-time record still belongs to Nvidia, which shed almost $600bn in a day in January 2025 when DeepSeek unsettled the AI investment case.
Numbers of that size used to describe recessions. Now, they describe a bad trading day.
Moves like these are unsettling. However, volatility is part of investing in the stock market, not necessarily a sign that something has gone wrong.
Why are stocks more volatile?
There is no single explanation. Several features of today's markets can amplify moves, although their individual effects are difficult to separate.
Leverage is the most mechanical. Leveraged exchange traded funds (ETFs) must rebalance daily to hit their target multiple, which means buying into strength and selling into weakness, usually near the close. In the US, that daily rebalancing is estimated to have roughly quadrupled since early 2026, to about $50bn a day.
When those products track a single stock rather than an index, the flows are far more concentrated.
Korea offers a live case study – after single-stock leveraged ETFs on Samsung Electronics and SK Hynix launched in May, they were quickly blamed for amplifying swings, and by July regulators had suspended new listings and tightened access.
Market participation has changed, too.
The US market is one of the largest retail markets in the world, and their retail investors account for a larger share of trading than a decade ago, and momentum-driven trading can reinforce price moves. Systematic strategies can also amplify swings, and algorithmic market-makers may step back when liquidity is most needed.
Then there are the incentives. After an extended bull market, many investors are sitting on substantial gains, and this makes them happier to take profits.
As the US moves into year end, tax-loss harvesting adds a layer of selling that has little to do with fundamentals. And with bond yields offering a genuine return, there is a credible place to wait out the storm, which makes selling some shares and moving into bonds, or even cash, easier than when government bonds paid next to nothing.
What does history tell us about market volatility?
Whatever the cause, the more useful question is what volatility means for long-term outcomes. Individual stocks move more than the indexes that contain them, but even the whole market suffers ups and downs, particularly when there is a thematic sell-off, such as seen in recent weeks around the AI trade.
Since 1980, the MSCI world has suffered intrayear falls of an average of 14.2% yet finished the calendar year higher in 35 of 46 years to 2026.
A fall of 10–15% during the year does not, on its own, mean that something has broken. Falls of that size can sit alongside a positive annual return.
That is not to say that drawdowns are always shallow. The dot-com bust was a genuine bear market: the MSCI World fell 6% in 2000, 15% in 2001 and 28% in 2002, a cumulative loss of about 43%.
But then both episodes were followed by powerful recoveries. The MSCI World rose 20% in 2003, 7% in 2004, and 22% in 2005. Investors who sold near the bottom crystallised the loss and missed the rebound because the sharpest rallies tend to arrive when sentiment is at its worst, and they rarely announce themselves.
Although please do remember that past performance is not a guide to future returns.
Do not try to time it
That is the difficulty with trying to sidestep volatility.
To time the market successfully, you need to be right twice: both when to get out and when to get back in. The second decision can be harder, because the news may still be bad and the case for waiting can feel compelling.
The more useful response is to build a portfolio that you can hold through the swings. That means keeping cash for near-term needs to reduce the risk of having to sell at the wrong time and using bonds to help balance the portfolio.
Regular investing can help, too – a fixed contribution buys more when prices fall, rather than leaving every purchase dependent on a decision about market timing.
Volatility is part of investing. Larger daily swings do not, by themselves, tell us what long-term returns will be. What matters is having a portfolio that fits your needs and time horizon, and a plan you can stick with when markets become unsettled.
This article is for information only and not personal financial advice. Investing can help your money grow over the long term, but the value of investments can rise and fall, so you could get back less than you put in. Past performance is not a guide to future returns.
If you’re not sure whether investing is right for you, a financial adviser can help.