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History predicts another volatile week

Traders on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters
Traders on the floor of the New York Stock Exchange.

Last week, The Big Crunch took a look at the historical precedent for periods like last week, predicting that this week will be very volatile.

So far, it looks like we were right: The Dow Jones industrial average fell more than 350 points into correction territory after the open Tuesday morning. At midday, the S&P 500 was down 2.5 percent.

The week of Aug. 24 was one of only 17 weeks since 1950 in which the S&P 500 saw a high-low difference of more than 6 percent and a relatively flat return—between -1 and +1 percent. That combination of a big swing and small weekly return is very unusual, and it consistently leads into another week of big swings.


Overall, most of these weeks were highly volatile, with the difference between their highs and lows at a median of 5.8 percent, compared to a weekly median of 2.5 percent for every other week since 1950.

The returns are also consistently much greater than the average. About 45 percent of all weeks since 1950 have ended with returns between 1 and -1 percent, but the weeks in the above chart are likely to have either unusually large gains or large losses.

Are any specific sectors more likely to outperform in those weeks? The Big Crunch ran an analysis through data analytics firm Kensho, and found that two sectors have historically posted higher returns that are statistically significant compared to the sector's normal performance.


Those numbers are returns based on simulated trades that were executed before and after each week. About 75 percent of those trades were positive for telecom and health care, which had average percentage returns of 1.7 percent and 1.3 percent, respectively.

It's too soon to tell whether this week will end up positive or negative, but it's looking like we should expect high volatility before the week is up.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.