Stock Market Appears Stable Despite Wild Fluctuations in Individual Stocks

Hidden Volatility in US Stocks Despite Market Stability

Although the US stock market has appeared stable in recent months, Barclays Plc analysts warn that beneath the surface, individual stocks are experiencing record levels of volatility.

For example, last year saw the S&P 500 Index surge 16% on the back of artificial intelligence enthusiasm. Yet, among the 100 largest companies in the index, there were 47 occasions where stocks suffered dramatic declines—falling by at least five standard deviations, a move so rare it’s typically viewed as an outlier. This is the highest number recorded by Barclays since 1998.

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Barclays anticipates that this pattern will persist in the coming year, highlighting the market’s increasing reliance on AI-driven stocks. The bank also notes that AI technology is accelerating how quickly traders react to significant news.

Volatility Shifts to Individual Stocks

“The main source of volatility has shifted to single stocks,” explained Stefano Pascale, Barclays’ head of US equity derivatives research. He described the current environment as fostering a “lottery-ticket mentality” among retail investors.

On Wednesday, even as the S&P 500 dipped by 0.5% and technology shares were sold off, the index’s volatility gauge remained below its 2025 average. Barclays attributes this muted volatility in part to retail investors buying on market dips.

Upcoming Events May Shake the Market

Several upcoming events could disrupt the S&P 500, which recently reached a record high. Christopher Jacobson, a strategist at Susquehanna International Group, suggested that investors seeking protection from renewed volatility consider purchasing put options on the SPDR S&P 500 ETF Trust (SPY) with a $685 strike price, slightly below its recent close of around $690.

Jacobson pointed to a contract expiring on February 6, which would cover major tech earnings reports, the Federal Reserve’s January 28 policy meeting, the February 6 jobs report, and a possible Supreme Court decision on tariffs, along with other global uncertainties.

Preparing for Isolated Turbulence

While broad market volatility expectations remain subdued, Barclays strategists predict that sudden, sharp moves in individual stocks will continue to disturb the overall calm. They recommend considering a “dispersion trade,” which uses derivatives to bet on increased volatility in specific stocks while the broader market stays relatively stable.

Earnings Surprises and the Role of AI

With earnings season underway, this strategy may be timely. Last year, some of the S&P 500’s largest companies experienced dramatic one-day moves—such as Oracle’s 36% jump on September 10 and UnitedHealth Group’s 22% plunge on April 17—both triggered by unexpected earnings results.

Technology Accelerates Market Reactions

According to Pascale and Anshul Gupta, Barclays’ head of derivatives research for EMEA, advanced technologies, especially AI, now enable analysts and traders to analyze quarterly results almost instantly using algorithms.

This rapid processing has eliminated the phenomenon known as “earnings drift,” where stock prices would gradually adjust in the days following earnings announcements, Gupta noted.

Barclays also observed that while earnings-related risks are now more concentrated, the excitement around AI has made it increasingly difficult to identify which stocks will outperform or underperform.

“There’s much more differentiation, and investors need to be selective,” Pascale said. “The days when the AI boom lifted all stocks equally are over.”

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