Just how turbulent is the stock market? More than half a trillion dollars in paper gains were made and lost within just two weeks in September. The S&P 500 jumped 5 percent in the week ending Sep. 16, the second best week this year. The next week it plunged 6 percent, the second worst week this year.
The wild swings have made many wary of putting money in the stock market. "It's like an elevator with only two buttons," said Jeffrey Sica, president of Sica Wealth Management. "If you see one button says 'surge' and the other says 'plunge,' you're not going to get on the elevator."
In market-speak, it's called volatility: Large jumps followed by deep dives, within the course of a week or sometimes the same day. The surge in volatility since early August has been blamed for preventing companies from going public and scaring people out of stocks. Some think that even if Europe resolves its debt crisis, large price swings are here to stay.
In August, many put part of the blame for that month's volatility on the summer vacation season. Come September, they said, more people will be at their desks buying and selling, making it harder for large orders to rattle the market when trading volumes are thin. That turned out to be half right: Trading volume has picked up since Labor Day, but the stock market looks far from calm.
To get an idea how volatile the market has been, consider:
— The Dow Jones industrial average has gained or lost more than 200 points in a trading day 16 times since the start of August. Six of those days came in September. In the first seven months of the year, that happened just four times.
— The long-term trend is toward more volatility. Judging by the number of times in a year the S&P 500 swung 2 percent or more in a single day, markets are much more likely to have large leaps up or dives down, according to S&P's equity research group. Swings of 2 percent occurred an average of five times a year from 1950 to 1999. It's already happened 20 times this year, with three months left to go.
The heavy turbulence that started in August is the main reason why no company has managed to pull off an initial public offering since the Chinese online video website Todou Holdings went public Aug. 16. The backlog of companies waiting to debut in an IPO has never been larger.
"All the volatility has made for an unfavorable IPO environment," said Claude Courbois, managing economist at Nasdaq OMX's research department. "An IPO is your coming out party, a chance to tell your story. You don't want an enormous amount of uncertainty surrounding it."
Analysts say it's also the chief reason Americans are fleeing the stock market as if it's 2008 all over again. Retail investors pulled $36 billion out of U.S. stock funds in August, according to preliminary data from the Investment Company Institute. That's second only to the $47 billion withdrawn from U.S. stock funds at the height of the financial crisis in October 2008.
"The swings themselves have eroded the confidence of investors," said Jeff Kleintop, chief market strategist at LPL Financial. "It's the sign of a market and an economy not on sound footing."
Sica, the wealth manager, told his clients to leave no more than 10 percent of their savings in stocks at the end of May on the belief that markets would slide as the Federal Reserve's efforts to help the economy came to an end in June. The stock market's drop since then has failed to lure Sica and his clients back in. In fact, he's told his clients to get the rest of their money out.
In the past, a rally like the 5 percent one in the week ending Sep. 16 would be enough to cause Sica's phone to ring with calls from clients wanting to shift more money into stocks. "They'd have the sense their missing out on something," Sica said. In recent weeks, stock market surges are followed by clients calling to say "'Please keep me out,'" he said.
"This is the first time in 20 years that I'm totally out of stocks, unfortunately. Just because something declines, it doesn't mean it will ever come back."
