Calm markets often end in stock storm

Was 2017 the calm before the storm on Wall Street?

History says there’s a good chance that a lack of wild price swings and major stock market dips last year could leave stocks susceptible to a bigger drop at some point in 2018.

A major trend on Wall Street last year was how placid the market was. The Standard & Poor’s 500 stock index rose 19.4% in 2017, but the big story was how few scares there were along the way.

The large- company stock index moved up or down 1% on a daily basis only eight times — its tamest year since 1964, according to S& P Dow Jones Indices. And there were no sizable drops, either. The biggest dip was 3%, the tiniest price drawdown since 1995, according to data from Strategas Research Partners, a New York investment firm.

But the calm doesn’t necessarily continue in the new year.

In fact, so- called “lowvolatility” years “have almost always been followed by some type of correction,” Chris Verrone, a Strategas analyst, noted in a report.

Following 1995’ s 34% gain and its maximum drop of 3%, the S& P 500 suffered a brief top- tobottom decline of 8% in 1996, even though it finished the year up 20%.

Overall, after the nine years the large- cap stock index suffered its smallest intra- year drops, the next year saw an average correction, or stock downdraft, of 12%, according to Strategas.

And two of those years saw bear markets, or declines of 20% or more.

The takeaway: Investors should prepare for a stock market dip of sizable magnitude at some point this year.