Category Archives: SP 500

The S&P 500 Clocks High Before Retreating in Week 2 of July 2021

The S&P 500 (Index: SPX) started the trading week strong, reaching a record high close of 4,384.63 on Monday, 12 July 2021 before losing steam and retreating through much of the rest of the week. The index closed the week at 4,327.16.

That's generally consistent with the dividend futures-based model's projections for investors focusing their attention on 2022-Q1 in setting current day stock prices.

Alternative Futures - S&P 500 - 2021Q3 - Standard Model (m=-2.5 from 16 June 2021) - Snapshot on 16 Jul 2021

While the model looks forward to a sideways to slowing rising run over the next several weeks if investors keep their focus on 2022-Q1, it also indicates the risk of a 5% decline should investors have reason to shift their attention back to the current quarter of 2021-Q3.

Whether that happens will depend much on what happens with the outlook for inflation in the U.S. economy, which continues to play an outsized role in the news influencing investors' expectations.

Monday, 12 July 2021
Tuesday, 13 July 2021
Wednesday, 14 July 2021
Thursday, 15 July 2021
Friday, 16 July 2021

Looking for additional markets and economics news? Check out Abnormal Returns, in which Tadas Viskanta provides a daily roundup of links to interesting news and analysis.

Fewer and Deeper Long Losing Streaks for S&P 500

Compared to the period from 1950 through 1980, the S&P 500 (Index: SPX) of the last four decades experiences notably fewer long losing streaks. But during the last twenty years, those losing streaks have become substantially deeper.

We've calculated the smallest, largest, median and mean declines the S&P 500 experience during its longest losing streaks of six trading days or longer in duration beginning in the periods of 1950 through 1980, 1981 through 2000, and 2001 through this point of 2021. That information is visualized in the following chart:

Magnitude of Declines in the S&P 500 During Its Longest Losing Streaks, 3 January 1950 - 2 July 2021

The median and mean decline of the index' value is roughly similar in the periods for 1950-1980 and 1981-2000, although the number of losing streaks declined. But since 2000, while the number of long losing streaks has continued to fall, the magnitude of the associated decline of stock prices has become much larger when they have occurred.

Previously on Political Calculations

The S&P 500 Wavers Before Clocking New High

The S&P 500 (Index: SPX) broke its seven day winning streak to start the week and though it wavered, it closed the Fourth of July holiday-shortened week at a new high.

In doing that, it confirmed our observation that investors have shifted their forward-looking attention to the more distant future quarter of 2022-Q1. We see that confirmation as the redzone forecast ranges reached its end, with the level of the index coinciding with where the dividend futures-based model indicates it would be if investors fixed their sights on that more distant future quarter.

Alternative Futures - S&P 500 - 2021Q3 - Standard Model (m=-2.5 from 16 June 2021) - Snapshot on 9 Jul 2021

The news of the week didn't do much to alter that apparent shift in investor outlook. Here are the headlines we flagged for their market-moving potential during the week that was.

Tuesday, 6 July 2021
Wednesday, 7 July 2021
Thursday, 8 July 2021
Friday, 9 July 2021

Looking for another summary of market news? Try MarketWatch's Market Snapshot, which provides a daily summary of the news that influenced investors.

Visualizing Long Winning and Losing Streaks for the S&P 500

With the S&P 500 (Index: SPX) having ended its latest prolonged winning streak of 7 days earlier this week, we wondered how frequently such long streaks for the index happen.

We're defining a long streak as lasting six or more trading days. Since 3 January 1950, the index has experienced 321 long streaks. 208 of those have been winning streaks and 113 have been losing streaks. The longest winning streak of 14 days began on 26 March 1971. The longest losing streak began on 22 April 1966 and lasted 12 trading days.

We've generated the following barcode chart to visualize each of the S&P 500's long streaks since 3 January 1950:

Long Streaks (6 Trading Days or Longer) in the S&P 500, 3 January 1950 - 7 July 2021

In the chart, we're using the horizontal axis as a timeline, with the vertical bars marking the date each long streak began. The duration of the streak is shown by the length of the bars - these are shown as positive values if they were winning streaks and negative values if they were losing streaks. Periods where streaks occurred more frequently appear as thicker bars, while periods where long streaks were sparse appear as empty or blank space.

Overall, the combination of the relative frequency of the long streaks and the scale of the chart produces a visualization that looks a bit like a UPC barcode.

The visualization does reveal a number of interesting patterns.

  • Long streaks were much more common in the first three decades of this period than they have been in the most recent four decades.
  • Long winning streaks are more common than long losing streaks.
  • Long losing streaks have become more rare since 2000.

Here is some data to quantify these observations.

From 3 January 1950 through 31 December 1980, there were 120 winning streaks and 72 losing streaks, a W/L ratio 1.7-to-1. From 2 January 1981 through 2 July 2021, when the S&P 500's most recent long streak began, there have been 88 winning streaks and 41 losing streaks, a 2.1-to-1 W/L ratio.

Splitting this latter period roughly in half, from 2 January 1981 through 31 December 1999, there were 44 winning streaks and 26 losing streaks, a 1.7-to-1 W/L ratio, similar to what was seen from 1950 through 1980. Since 3 January 2000 however, there have been 44 winning streaks and 15 losing streaks, nearly a 3-to-1 W/L ratio.

What changed in the last 20 years to produce that outcome? Is it a statistical anomaly where we'll eventually have a period characterized by clusters of long losing streaks as the trend reverts to the mean? Or has something else changed to stop losing streaks in the S&P 500 from becoming long losing streaks during this period?

We don't know the answers to these questions. As far as we know, we're also the first to report these observations, but if we learn others have noticed and reported it, we'll add that information to the end of this post. For now though, we're very happy to find ourselves back at the cutting edge of discovery!

References

Yahoo! Finance. S&P 500 Historical Data. [Online Database]. Accessed 7 July 2021.

Previously on Political Calculations


The S&P 500 Roars to New Record Highs

The S&P 500 (Index: SPX) roared to new record highs, closing the trading week at 4,352.34, having closed higher on each of its last seven trading days.

The alternative futures chart shows the trajectory of the index rising to the top end of the latest redzone forecast range:

Alternative Futures - S&P 500 - 2021Q3 - Standard Model (m=-2.5 from 16 June 2021) - Snapshot on 2 Jul 2021

The redzone forecast assumes investors would focus on 2021-Q3 in setting current day stock prices, but that may have changed during the past week, thanks to the continuing efforts of Federal Reserve officials to set expectations they will not hike rates until late 2023 to respond to inflation, which they continue to claim is transitory.

Instead, the economic data is such that Fed officials are instead signalling they will begin tapering their stimulus bond buys at the end of 2021, which we think may have prompted investors to shift their forward looking attention outward to the more distant future quarter of 2022-Q1.

When we refer to future quarters, we're referring to the periods covered by dividend futures contracts, which do not follow calendar quarters. For example, 2021-Q4 will end when its dividend futures contract expires on the third Friday of December 2021, or rather, on 17 December 2021. The Federal Reserve's Federal Open Market Committee's final meeting of the year will occur earlier that week, where any action they choose to take would begin just as 2021-Q4 ends, which is why investors would focus on 2022-Q1.

Our thinking is paced in part by the market moving headlines of the week that was, where you can see the efforts of the Fed's minions to set future expectations:

Monday, 28 June 2021
Tuesday, 29 June 2021
Wednesday, 30 June 2021
Thursday, 1 July 2021
Friday, 2 July 2021

Need more U.S. markets and economy news? The old standby of the Wall Street Journal provides above average news coverage, falling in the "center" range of Allsides' bias ratings.

The next week will be interesting because of the S&P 500's current streak of consecutive higher daily closes. We'll find out how close it might get to a new record in that category as well!