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The S&P 500 has become more volatile in recent years, according to research firm DataTrek.
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That's partly to do with bad luck and partly to do with unexpected events impacting the market.
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The bigger factor is the massive growth of big tech stocks that make up more and more of the S&P 500.
Stocks are a risky investment, but huge intraday swings and relentless volatility seem to have only grown more frequent and intense in recent years.
There are a number of factors that seem to have amplified volatility in large cap stocks, but according to DataTrek, the gains haven't necessarily increased in tandem with the risk.
"The S&P 500 has become noticeably more volatile over the last +60 years, but returns have not increased commensurately," DataTrek said in a note published Thursday. "A combination of factors has caused the shift, but Big Tech's relative overweight is driving this trend now. We still believe US large caps are the most productive equity investment, but having a realistic view on volatility is important."
"From 1958–1979, the standard deviation of daily returns was 0.72 percent. It rose to 0.89 percent from 1980 – 1989, and has been even higher since 2000, at 1.13 pct," the analysts added.
Here's why the research firm sees higher risk in the stock market today than in past eras.
Big tech concentration
Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, Meta—the famously dubbed "Magnificent Seven" stocks have been responsible for most of the gains in the S&P 500 this year, which has masked what's happening in other areas of the market.
"The S&P 500 is now heavily weighted to Big Tech, and this group exhibits both higher valuations and price volatility than the average company," Data Trek researchers said in the note.
Last month, Apollo Management's chief economist Torsten Sløk said, "If you buy the S&P 500 today, you are basically buying a handful of companies that make up 34% of the index."
Which goes to say that the S&P 500 is far more sensitive to the price movement of these seven stocks, which are themselves highly sensitive to events like the Federal Reserve's interest rate hikes and other macro disturbances. This means that big swings in a handful of names can drive much of the price action in the broader index.
Unexpected developments hit harder
Another explanation is that the market in recent years has had an outsized reaction to unanticipated developments relative to past eras.
"Unexpected events simply hit stocks harder than they used to," DataTrek's note said. "Last year's aggressive series of Fed rate hikes created as much volatility as the 1973–1974 oil shock."