New York: Through most historical lenses, the tempest in equities over the last three days is barely noticeable. View it next to the market’s eerie dormancy heading into the fraught month of August and it stands out.

Suddenly at risk is a feat with no precedent in US stocks, the S&P 500’s streak of 15 straight days without swinging 0.3 per cent in either direction. Selling picked up Thursday morning to swell the three-day decline to 1 per cent — practically a rout in a market that hasn’t had a peak-to-trough drawdown exceeding 3 per cent in nine months.

Everyone knows August is the worst month for shares. Now the calendar will be tested when valuations are the highest since the dot-com bubble, nobody knows what fiscal and monetary policy hold, and a once-strong earnings season ended badly with disappointments at Walt Disney Co, Mylan NV and Macy’s Inc.

“A nasty short term combination for volatility is setting up near term if geopolitical risk increases at the same time the US debt ceiling debate is getting underway,” said Dennis DeBusschere, head of portfolio and quantitative strategy at Evercore ISI.

Stocks fell the most since May on Thursday, extending a decline began when President Donald Trump warned North Korea over aggression. The S&P 500 fell 1 per cent, while the CBOE Volatility Index jumped 32 per cent to bring its three-day rise to 47 per cent.

Sudden bout

Equities globally are having an even worse stretch than their US counterparts. The Stoxx Europe 600 is down 1.6 per cent over three days, Japan’s Nikkei 225 Average has fallen 1.6 per cent and emerging market shares measured by MSCI are down 1.9 per cent, the most since May. In Korea, the Kospi 200 Volatility index jumped 32 per cent over two days, hitting a four-month high.

The sudden bout of volatility followed three weeks of motionlessness, with the S&P 500 trapped in an 11-point range. To many, the peace was unnerving.

Take clients of AllianceBernstein. A week ago, with almost every major equity benchmark in America sitting at a record, inquiries to the brokerage about the timing of the next 5 per cent or 10 per cent decline in the S&P 500 were the most-asked question to its strategists.

Shares are nowhere near a drop of that size, but should the current decline extend to a correction, investors will point to August 8 as its genesis.

The S&P 500 erased a 0.4 per cent gain Tuesday in the biggest reversal in four months after President Donald Trump said North Korea’s nuclear threat to the US would be “met with fire and fury.” While the war scare seemed to dissipate the following day, with the index recouping a 0.5 per cent loss in the final hour of the session, selling accelerated again Thursday as investors shifted focus to retailer earnings and the weakness in the credit market.

“Even though a single-day spike in volatility and little pullback in the stocks isn’t too alarming, investors are paying a very close attention as they try to figure out where the top of the market is,” said Bruce Bittles, chief investment strategist at Robert W Baird, said by phone.

Accommodative central banks

As usual, tech shares bore the worst of the selling as investors exited this year’s best-performing group. The Nasdaq 100 Index sank 1.5 per cent Thursday while the FANG block of tech giants, including Facebook, Amazon.com, Netflix and Google, tumbled 2.4 per cent.

To Michael Shaoul, chief executive officer of Marketfield Asset Management, the rout is unlikely to escalate as global economic growth is strengthening, central banks continue to be accommodative and corporate America stays healthy. Despite this week’s earnings disappointments, S&P 500 profits are on course for the back-to-back 10 per cent growth for the first time since 2011.

Other than dreading August, does the past hold any clues? Investors might look to the 1962 episode of Cuban missile crisis for an idea of the potential shock to equities should tensions between North Korea and the US escalate, according to Michael Purves, chief global strategist and head of derivatives research at Weeden. During those two weeks when the prospect of a nuclear war grew, the S&P 500 Index’s 30-day volatility almost doubled.

“The brief decline by global markets is a reasonably measured response to the cross continent sabre-rattling, but not in itself indicative of a meaningful change in the overall mood of markets,” Shaoul said. “It remains possible that we will see another brief lurch downwards, particularly in the technology sector that seems to be the locus of hedging activity, but the chances of this developing into a meaningful correction still looks remote at the current time.”