THE INDECISIVE STOCK MARKET
Robert O. Welk Rowtek Economics
Observers
of the stock market are well aware that daily volatility in stock
prices has increased significantly recently. (See the discussion
in Abandoning
Equities) Volatility also is evident in weekly data.
Averaging the days for the week has not been
helpful in revealing the underlying trend for the market.
The following chart shows a frequency distribution of weekly percentage changes in the S&P 500 for the past five years. (An outlier, October 10,2008, when the week declined 14%, has been omitted in this analysis.)
The average for all 260 weeks is nearly zero (26 hundreths percent). There have been 42 more weeks of gains than declines but the minus weeks averaged 2.0% while the plus weeks averaged 1.5%.
Typically, weeks have gone in the same direction for only two to five weeks after which the direction is reversed. There have been seven intervals during the five years when the same direction has persisted two or three months.
3/23/07-6/1/07 +11 weeks
5/23/08-7/18/08 -9
9/5/08-10/24/08 -8
2/19/10-4/23/10 +10
9/3/10-11/12/10 +11
11/26/10-2/18/11 +13
5/6/11-6/17/11 -7
There have been 69 weeks, or about one-fourth of the 260, during which the development of a trend was being attempted. (191 weeks of volatility.) This market does not know whether it wants to be a bull or a bear! The character of this market is quite in contrast to the bull market of the 90's when the trend was quite obvious.
During the past decade the global economy has become more closely interlinked. Instant communications means that a problem in an obscure part of the globe is transmitted everywhere and has an impact in one way or another on all. It is no longer sufficient to consider only the Gross Domestic Product,employment, earnings, etc. in the United States. Economic, financial, and other problems all over the globe must be taken into account. Uncertainty has skyrocketed. The prospect of the uncertainty diminshing has a low probability. The stock market is likely to continue to reflect that.
Copyright © 2011 RowTek Economics. All rights reserved.
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The following chart shows a frequency distribution of weekly percentage changes in the S&P 500 for the past five years. (An outlier, October 10,2008, when the week declined 14%, has been omitted in this analysis.)
The average for all 260 weeks is nearly zero (26 hundreths percent). There have been 42 more weeks of gains than declines but the minus weeks averaged 2.0% while the plus weeks averaged 1.5%.
Typically, weeks have gone in the same direction for only two to five weeks after which the direction is reversed. There have been seven intervals during the five years when the same direction has persisted two or three months.
3/23/07-6/1/07 +11 weeks
5/23/08-7/18/08 -9
9/5/08-10/24/08 -8
2/19/10-4/23/10 +10
9/3/10-11/12/10 +11
11/26/10-2/18/11 +13
5/6/11-6/17/11 -7
There have been 69 weeks, or about one-fourth of the 260, during which the development of a trend was being attempted. (191 weeks of volatility.) This market does not know whether it wants to be a bull or a bear! The character of this market is quite in contrast to the bull market of the 90's when the trend was quite obvious.
During the past decade the global economy has become more closely interlinked. Instant communications means that a problem in an obscure part of the globe is transmitted everywhere and has an impact in one way or another on all. It is no longer sufficient to consider only the Gross Domestic Product,employment, earnings, etc. in the United States. Economic, financial, and other problems all over the globe must be taken into account. Uncertainty has skyrocketed. The prospect of the uncertainty diminshing has a low probability. The stock market is likely to continue to reflect that.
Copyright © 2011 RowTek Economics. All rights reserved.
BACK TO MAIN PAGE