Coronavirus-driven market volatility has 401k participants—once thought to be somewhat insulated from market shocks by target-date funds and protective plan designs—engaged in higher-volume trading behavior not seen in some time.
“Even in the depths of the financial meltdown in October 2008, we didn’t see this type of abnormality,” Rob Austin, head of research at Alight, soberly said in a statement Friday.
On Thursday, the Illinois-based company’s Alight Solutions 401k Index saw 11.37 times average trading—the second-highest trading multiplier in the history of Alight’s Index.
This is very rare territory, Austin added, noting that since the beginning of 2008, there have been only three days where the activity exceeded the 11 times average:
- January 22, 2008
- February 5, 2018
- February 27, 2020 (Thursday)
The Dow, S&P and Nasdaq were below -4% while the Russell eked just under -3.5%. Futures continue to point downward.
2008 territory
The news comes on earlier activity Monday, which saw a high level of activity (3.95 times the daily DC trading average) going towards fixed income.
For perspective, a “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percent of total 401k balances within the Alight Solutions 401k Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.
A “high” relative transfer activity day is when the net daily movement exceeds two times the average daily net activity.
A “moderate” relative transfer activity day is when the net daily movement is between 1.5 and two times the average daily net activity of the preceding 12 months.
Overall market activity showed little signs of slowing, as the Dow tumbled over 700 points further by midday Friday, approaching the 25,000 mark, on track for its worst weekly loss since the financial crisis of 2008.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
