Stock market volatility refers to big changes in trading prices over a short period of time. It can affect entire groups of investments, like stocks and bonds, as well as individual assets, such as commodities or currencies.
A large number of investors selling at the same time (a sell-off) can lead to price swings that are more dramatic than normal. Other factors can also increase volatility, including unexpected news or events.
For example, economic data surprises (like a stronger-than-expected jobs report or weaker-than-expected inflation reports) can shift investor expectations and cause stocks to fluctuate. Corporate earnings or guidance can also cause share prices to move more than usual, especially when companies’ results or forecasts are below or above expectations. Global events, like war, political unrest or natural disasters can also impact the markets and cause stocks to swing.
Statistical tools, such as standard deviation and beta, can help investors measure volatility. The former measures how far an asset’s returns deviate from the average; the latter indicates how much a particular investment is likely to change in value over time.
Regardless of its source, high volatility can be stressful for many people. It may lead some to panic and sell, potentially locking in losses or derailing long-term plans. Others, however, may choose to ride out the turbulence, continuing to invest at regular intervals as part of an overall financial plan. Your financial advisor can help you evaluate your risk tolerance and long-term goals so you can respond thoughtfully to volatility.