Is This Boring Market a Good Sign For Bulls?

The S&P 500 Index (SPX) has traded within a narrow range so far this year, but that might not be a bad thing

Senior Quantitative Analyst
Jun 3, 2015 at 7:45 AM
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So far in 2015, the market has done a whole lot of nothing. At its lowest point this year, the S&P 500 Index (SPX) was down just 3.22%. At its highest point it was up just 3.49%. That is a range of just 6.7 percentage points. Since 1929, that is the seventh-narrowest range we’ve seen. This week, I’ll take a look at what such a narrow trading range through the first five months has meant for the rest of the year.

SPX 2015

Narrow Range & Rest of Year: I broke down the rest-of-year returns (June through December) on the SPX, depending on the trading range from January through May. I have already mentioned this year’s range was just 6.7%, which is extremely narrow. The table below shows what the trading range has meant for the index for the rest of the year.

SPX returns

I’ll start off with the bad news. The years with the narrowest trading range (a range of less than 10%) had the lowest average return of the three brackets (3.46% compared to 4.02% for a moderate range and 6.45% for the widest range).  However, the good news is that the narrow range has led to positive returns for the rest of the year more often than either of the other brackets. Notice that the standard deviation of the returns is considerably lower for the narrow range compared to either of the other two brackets. In conclusion, a narrow range through May has typically led to a positive -- but boring -- June through December. 

 

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