Stock Market Hasn't Done This In 22 Years

Analyzing SPX performance through the end of the year, when stocks start quietly

Senior Quantitative Analyst
May 17, 2017 at 6:30 AM
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Stocks have done quite well this year, with the S&P 500 Index (SPX) currently up about 7% year-to-date. Thus far, however, stocks have barely moved at all on a daily basis. In 2017, there have been only three out of 93 trading days where the index has moved up or down by at least 1%. This is an extremely small number. Since 1929, only five years have had fewer 1% days at the 93-day marker. This week, we will take a historical look at those years where daily SPX moves were muted, and see how the rest of the year then played out after these rare signals.  

Chart 1

Very Few 1% Days

We will begin our focus on years where there were fewer than 10 days when the daily SPX move was less than 1%. That gives us 20 returns, not including this year. The eight lowest, as well as this year, can be seen in the table above. The last time this signal flashed was 1995.

The table below looks at the S&P 500's year-to-date return at this point in the year. Generally speaking, there is more volatility in down markets than bull markets, so it’s not surprising that these years have outperformed other years. Low-volatility years have averaged a 5.53% gain, with 80% of the returns positive. This year is slightly better than average, with the S&P 500 gaining around 7% year-to-date thus far.

Chart 2

SPX Rest-of-Year Performance After Low-Volatility Starts

The table below shows how the index performed over the rest of the year. The low-volatility years through the first 93 trading days have been better, on average, than the other years. The 20 years with fewer than 10 1% days averaged a return of 5.45% over the rest of the year, and were positive 70% of the time. Other years, the index gained 3.61%, on average, with 65% of the returns positive. In addition, volatility has tended to stay low going forward, following a signal. The standard deviation of the returns is lower in these years (10.58%) than other years (15.99%).                          

Chart 3

Stocks Could Be In for a Strong 2017

We will now break down those 20 years based on the year-to-date gain for the S&P 500 at this point in the year. Low-volatility years where the S&P gained at least 5% by Day 93 tend to do extremely well for the rest of the year. The index has averaged a rest-of-year gain of 9.69%, with over 90% positive in these circumstances. The last year to meet this criteria was 1995, and the S&P 500 gained 16.7% over the rest of that year. These types of years bode very well for stocks.                                       

Chart 4


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