The SPX hasn't moved more than 1% in either direction since June 25
The stock market has been boring lately, and I have some stats to prove it. Looking at a couple of streaks that highlight this point -- the S&P 500 Index (SPX) has not moved more than 1% in either direction in over 50 trading days, and the 20-day historical volatility (HV) on the index has been in the single digits going on two months now. Below, I show other times in the past where we've seen this, and what happened going forward.
Low Stock Volatility Could Continue
On June 25 -- more than 50 trading days ago -- the S&P 500 was down 1.4%. Since then, there has not been a single day where the index moved by at least a percentage point in either direction. Stocks aren't making big one-day moves. Since 1928, as far back as we have S&P 500 data, there have only been 23 streaks that reached 50 trading days. Remarkably, three of those streaks occurred last year alone.
I was surprised at the table below summarizing S&P 500 returns after these streaks. Low volatility usually goes hand-in-hand with bullish markets. After these signals, however, stocks have tended to struggle. The low volatility continues, as the standard deviation of returns is lower than typical returns since 1951 -- the year of the first signal. But the over the next six months, the index averages a gain of just 1.44%, compared to the typical return of 4.26%. The average return from a week to three months has been negative.
Breaking Down Another Low Volatility SPX Streak
The 20-day historical volatility on the S&P 500 has been below 10% for 37 trading days now. This is the 54th time the streak has reached this many days. The table below summarizes the returns after these streaks.
The second table is for comparison, and shows typical returns since 1942 -- the year of the first signal. Nothing jumps out as particularly interesting after these signals. The volatility, as measured by the standard deviation of returns, is a bit lower than usual. That's not surprising, since these signals naturally occur during low-volatility environments. The returns after signals aren't too different from typical returns for the index.
It made me curious if a sell signal occurs when the HV finally moves above 10%. The answer is no. In fact, there's some outperformance in the short-term return (one week and a month). After that, the returns are typical.
