Indicator of the Week: How Much Longer Can the S&P Stay Quiet?

The S&P 500 Index (SPX) has been unusually quiet for months, but if history is any indicator, a massive short-term move is far from guaranteed

Senior Quantitative Analyst
Sep 7, 2016 at 6:30 AM
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It seems to me that the market has barely moved in the last couple of months. In reality, the S&P 500 Index (SPX) is up almost 2.5%. Annualized, that is a very satisfactory return of over 15%. It has been a very boring slog, though. The last time the index moved at least 1% in either direction was July 8, or 41 trading days ago. This week, I'll take a look at other times in the past when we've had such long streaks of sub-1% moves. How long can the streaks last, and what happens when they end?

Prior Streaks: Again, it has been 41 trading days since the S&P 500 gained or lost 1% for a single day. Going back to 1928, this is the 32nd time a streak has lasted this long (the first occurrence wasn't until 1944). The last time it happened was in June 2014. The first table below summarizes how the SPX has performed after the streak got to 41 trading days. The second table shows the typical returns since 1944, for comparison. The market has underperformed after prior instances of these streaks over the next two weeks to six months, according to the data below (I'm focusing on the average return and percent positive). Also, the standard deviation of returns is lower, which I expected, since these signals indicate low-volatility periods.

SPX chart1

I mentioned that the index was up a respectable 2.5% since the streak began. This is a pretty good return normally, but compared to the other streaks, it is actually a poor return (8th worst return, to be exact). The tables below break those prior 31 occurrence down by whether the index gained less than 4% during the streak (like this time) or more than 4%. You can see the stock returns are worse going forward when the returns during the streak are less than 4%. The return over the next three months averaged a loss of about 1% and was positive just half the time, when the return during the streak was less than 4%. Otherwise, the index gained more than 1.5% over the next three months, and was positive about 65% of the time. 

SPX chart2 index returns

When the Streak Ends: When will this streak end? It's pretty hard to tell. The prior streaks that reached at least 41 trading days lasted an average of 68 days, or just over three months. In that case, we have another month to go. However, the longest streak was 184 trading days. That occurred in 1963 and is one of three times the streak lasted for more than 100 trading days. 

Is there anything we should expect once the streak does end? Well, not really. The returns, again, slightly underperform the market from two weeks to six months, with slightly less volatility than usual. According to all this, investors should be prepared for nothing exciting going forward. 

SPX chart 3 streak ends

Here's one last thing I looked at. When the streak does finally end, does it matter whether it ends with a positive 1% move or a negative 1% move? First, note that about 70% of the streaks ended with the market going down by at least 1%, rather than up. Looking at the longer-term returns (three and six months), the market has tended to do better when the streak ends positively rather than negatively. However, the data size is too small for anything to be conclusive.

SPX chart 4 positive returns

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