What to Count on from the S&P 500 Within the Closing Week of 2022?

S&P 500, VIX and Liquidity Circumstances Speaking Factors:

• The Market Perspective: S&P 500 Uneven Vary Between 3,910 and three,650
• The ultimate week of the 12 months carries important seasonal expectations for volatility and quantity within the monetary markets, however there may be additionally an expectation for S&P 500 efficiency
• The 52nd week of the 12 months averages a 0.5% achieve 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 probability of for various outcomes

We’re in twilight of liquidity for the 2022 buying and selling 12 months. Wanting again on the ups and downs by means of the calendar 12 months, it wouldn’t be controversial to say that the S&P 500 led danger 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 12 months since 2008 are all viable standards for simply such an unflattering evaluation. Nevertheless, we have now closed out the 12 months simply but. There may be yet another week of commerce left with heavy seasonal expectations competing with an unresolved backdrop for fundamentals with quite a lot of volatility shock of late to attract upon a way of skepticism. I desire to maneuver ahead with expectations based mostly on the practicalities of liquidity with a consideration of what that may do to volatility, momentum and route. There may be definitely an opportunity that we witness one other bout of liquidity-amplified volatility earlier than the 12 months is drawn to a detailed and we consider January commerce circumstances. However at all times hold these developments in context.

Chart of S&P 500 with Quantity Overlaid with VIX Volatility Index (Each day)

Chart Created on Tradingview Platform

Trying to the historic averages, there may be statistical weight to the favored seasonal designation of a ‘Santa Claus rally’. Averaging the S&P 500’s efficiency by means of every calendar week of the 12 months again to 1900, the 52nd week has averaged a 0.45 % achieve. To right away present some sensible skepticism to this consequence’s inevitability, think about that the 51st week of the 12 months ahs averaged a 0.3 % advance however the index ended up dropping -0.4 % this previous week. These are averages they usually can take a variety of efficiency metrics relying on the distinctive circumstances of every 12 months. That stated, the ultimate week of the 12 months is rather more constant relating to the drain of liquidity and a subsequent drop in general volatility by means of that closing interval.

Chart of S&P 500 Historic Common Efficiency by Week (Each day)

Chart Created by John Kicklighter

Trying to the historic norms of volatility through the VIX volatility index, this remaining stretch usually extends its slide from late Summer time / early Fall peaks – and the statistical wobble that comes type the bout of indigestion by means of the fiftieth week of the 12 months which normally homes the FOMC fee resolution and plenty of key financial reviews. Whereas the general ranges of the VIX this 12 months have been considerably off relative to the averages again to 1990, the overall development we have now seen from these previous three months have adopted the sample pretty properly. If there may be much less market to commerce and the docket may be very skinny (which it’s), there may be much less potential for errant swells in volatility even when liquidity circumstances may compound the market motion.

Chart of VIX Volatility Index Historic Common by Week In comparison with 2022/2021 Actuals (Each day)

Chart Created by John Kicklighter

Statistics can typically be too summary for individuals, so I wished to have a look again to overview two Decembers with very completely different general performances relative to the seasonal averages for the month. December 2021 was largely in step with the everyday efficiency for the month. The second to final week of the 12 months final 12 months generated a major rally amplified by a previous, sharp dip. With a really restricted observe by means of on Monday of the 52nd, the ultimate week would finish within the inexperienced as properly. In the meantime, quantity naturally deteriorated because the 12 months got here to a detailed and the VIX was completely satisfied to observe go well with.

Chart of S&P 500 with Quantity Overlaid with VIX Spotlight December 2021 (Each day)

Chart Created on Tradingview Platform

The final important deviation to the common December efficiency was again in 2018. What is often a month that registers a achieve, that 12 months suffered a -9.2 % loss – the largest single month loss for the index all the way in which again to February 2009, on the shut of the Nice Monetary Disaster. As important as the general month’s loss was, the ultimate week of the 12 months in 2018 was nonetheless a achieve of roughly 2.9 %. That may be a important advance that was doubtless amplified by the substantial tumble that preceded the rebound. Whereas the center of December this 12 months has registered some important ‘danger off’ it hasn’t been a one-way transfer that appears vulnerable to normalization.

Chart of S&P 500 with Quantity Overlaid with VIX Spotlight December 2018 (Each day)

Chart Created on Tradingview Platform