S&P 500, VIX and Liquidity Conditions Talking Points:

  • The Market Perspective: S&P 500 Choppy Range Between 3,910 and three,650
  • The last week of the yr carries vital seasonal expectations for volatility and quantity in the monetary markets, however there’s additionally an expectation for S&P 500 efficiency
  • The 52nd week of the yr averages a 0.5% acquire from the S&P 500 again to 1900 and the VIX averages a drop to 5 month lows (‘summer time doldrums) however there’s a likelihood of for various outcomes

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We are in twilight of liquidity for the 2022 buying and selling yr. Looking again on the ups and downs via the calendar yr, it wouldn’t be controversial to say that the S&P 500 led threat benchmarks on a bearish trajectory. The technical ‘bear market’ designation (20 % correction from all time highs), seven out of 12 months marking losses and the worst general efficiency for a calendar yr since 2008 are all viable standards for simply such an unflattering evaluation. However, we’ve got closed out the yr simply but. There is yet one more week of commerce left with heavy seasonal expectations competing with an unresolved backdrop for fundamentals with various volatility shock of late to draw upon a way of skepticism. I desire to transfer ahead with expectations primarily based on the practicalities of liquidity with a consideration of what that may do to volatility, momentum and route. There is definitely an opportunity that we witness one other bout of liquidity-amplified volatility earlier than the yr is drawn to an in depth and we consider January commerce situations. But at all times maintain these developments in context.

Chart of S&P 500 with Volume Overlaid with VIX Volatility Index (Daily)

Chart Created on Tradingview Platform

Looking to the historic averages, there’s statistical weight to the standard seasonal designation of a ‘Santa Claus rally’. Averaging the S&P 500’s efficiency via every calendar week of the yr again to 1900, the 52nd week has averaged a 0.45 % acquire. To instantly present some sensible skepticism to this consequence’s inevitability, think about that the 51st week of the yr ahs averaged a 0.3 % advance however the index ended up dropping -0.4 % this previous week. These are averages and so they can take a variety of efficiency metrics relying on the distinctive circumstances of annually. That mentioned, the last week of the yr is far more constant when it comes to the drain of liquidity and a subsequent drop in general volatility via that closing interval.

Chart of S&P 500 Historical Average Performance by Week (Daily)


Chart Created by John Kicklighter

Looking to the historic norms of volatility through the VIX volatility index, this last stretch sometimes extends its slide from late Summer / early Fall peaks – and the statistical wobble that comes kind the bout of indigestion via the fiftieth week of the yr which normally homes the FOMC price resolution and a quantity of key financial stories. While the general ranges of the VIX this yr have been considerably off relative to the averages again to 1990, the basic pattern we’ve got seen from these previous three months have adopted the sample pretty properly. If there’s much less market to commerce and the docket may be very skinny (which it’s), there’s much less potential for errant swells in volatility even when liquidity situations might compound the market motion.

Chart of VIX Volatility Index Historical Average by Week Compared to 2022/2021 Actuals (Daily)


Chart Created by John Kicklighter

Statistics can generally be too summary for folks, so I wished to have a look again to assessment two Decembers with very completely different general performances relative to the seasonal averages for the month. December 2021 was largely in step with the typical efficiency for the month. The second to final week of the yr final yr generated a major rally amplified by a previous, sharp dip. With a really restricted observe via on Monday of the 52nd, the last week would finish in the inexperienced as properly. Meanwhile, quantity naturally deteriorated as the yr got here to an in depth and the VIX was glad to observe go well with.

Chart of S&P 500 with Volume Overlaid with VIX Highlight December 2021 (Daily)


Chart Created on Tradingview Platform

The final vital deviation to the common December efficiency was again in 2018. What is often a month that registers a acquire, that yr suffered a -9.2 % loss – the greatest single month loss for the index all the method again to February 2009, at the shut of the Great Financial Crisis. As vital as the general month’s loss was, the last week of the yr in 2018 was nonetheless a acquire of roughly 2.9 %. That is a major advance that was doubtless amplified by the substantial tumble that preceded the rebound. While the center of December this yr has registered some vital ‘risk off’ it hasn’t been a one-way transfer that appears inclined to normalization.

Chart of S&P 500 with Volume Overlaid with VIX Highlight December 2018 (Daily)


Chart Created on Tradingview Platform

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