Indicator of the Week: Will the S&P Finally Wake Up in the Second Half?

By one measure, the first half of 2015 was the flattest on record for the S&P 500 Index (SPX)

Senior Quantitative Analyst
Jul 8, 2015 at 6:37 AM
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We're halfway through the year as of last week. It has been a very flat market through the first six months. By one measure -- which you'll see below -- it's the flattest on record. I'll look at similar years and see how stocks have performed over the next quarter, and for the whole second half of the year.

Stocks Extremely Flat: Below is a year-to-date (YTD) chart of the S&P 500 Index (SPX). I marked the YTD low where the SPX was down 3.22%, and the YTD high of positive 3.49%. That is an extremely narrow range that the index traded between in the first six months of the year.  

How flat of a year has it been? Below I show the flattest 10 years since 1950 for the SPX by two different measures. First, I measured the range of the index. In 2015, the range from the high to the low was 6.71% (simply the difference of +3.49% and -3.22%). By that measure, it is the fourth flattest year. Second, I looked at the maximum deviation from the breakeven point. In 2015, the most the SPX veered from breakeven was 3.49%. By that measure, it's the flattest year on record.  


Next-Quarter Returns: The tables below show how the market has performed in the third quarter depending on how flat the first half was. Note the first table shows the returns by how narrow the range was between the high and low; the second table shows returns based on the maximum deviation from breakeven in the first half. The data shows low volatility has typically led to an underperforming third quarter. The SPX has averaged a loss in the third quarter when the range is extremely tight, and it has been positive barely half the time. Looking at the standard deviation of returns, it seems a quiet first half tends to indicate a quiet second half as well.  


Next-Year Returns: The next couple of tables below are similar to the ones above, except they show the SPX returns for the rest of the year rather than just the next quarter. While the average returns again underperform when the range is most narrow, the percent positive is highest. Again, the standard deviation is significantly lowest after a quiet first half. Using this as a guide, we would expect a boring, slightly higher market over the next six months. 

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