SPX Hasn't Been This Wild in Nearly a Year

It's been a volatile start to October for the stock market index

by Andrea Kramer

Published on Oct 14, 2019 at 1:17 PM
Updated on Jun 24, 2020 at 10:16 AM

It's been a wild October so far for the stock market, as investors have reacted to Fed buzz and updates on U.S.-China trade negotiations. In fact, from Sept. 27 to last Friday, Oct. 11, the S&P 500 Index (SPX) moved at least 0.4% every single session, regardless of direction. That's the first 11-day streak of notable moves in more than 11 months, and only the second such volatility streak since 2011.

Specifically, the last time the S&P moved 0.4% for at least 11 consecutive sessions was in November 2018, during which the index fell 1.07% on its way to the December lows, per data from Schaeffer's Senior Quantitative Analyst Rocky White. During the most recent streak, the SPX essentially went nowhere, losing just 0.25% when all was said and done. Prior to November 2018, you'd have to go back seven years for a similar streak, of which there were three in both 2011 and 2010. Below are the returns after all streaks since 2010.

SPX volatility streaks 1014

After at least 11 straight days of 0.4% swings, the SPX tends to underperform in the short term, looking at data since 2010. On average, the index fell 1.04% over the next two weeks, and was higher just once (in June 2010). That's compared to an average anytime two-week gain of 0.42% for the SPX. A month out, the SPX was higher by 0.62%, on average, though that still underwhelms compared to its average anytime one-month gain of 0.91%.

However, the tide tends to shift in the bulls' favor once you get to three months out. Following a lengthier-than-usual bout of big daily moves, the SPX was up 4.47%, on average, at the three-month marker, and higher 85.7% of the time. That's compared to an average anytime return of 2.71%, with a win rate of just under 75%.

Likewise, six months after a volatility jump, the S&P was up 10.76%, on average -- roughly double its average anytime return of 5.51%. What's more, the stock market index was in the black every single time six months after these streaks, compared to 80.9% anytime.

spx after vol signals since 2010 1014

Looking even further back, the short-term outlook for stocks is brighter. There have been 37 similar volatility streaks for the SPX since 1950. Two weeks out, the index was up an average of 1.14% -- more than triple its average anytime return of 0.34% during the same time frame. Plus, one month later, the S&P averaged a gain of 1.45%, compared to 0.71% anytime.

SPX vol signals since 1950 1014

In conclusion, recent history suggests the S&P could be in for another bumpy few weeks. However, as Schaeffer's Senior V.P. of Research Todd Salamone wrote earlier today, a couple of factors could be supportive of stocks in the weeks ahead, including "the contrarian implications of low earnings expectations as we move into earnings season" this week, and a possible "unwinding of the six-month build in short interest" that could push the SPX above the top of its range.


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