From the outside, it doesn’t look like the S&P 500 has done a whole lot this year.
But this lack of movement isn’t due to a boring market.
The average year in the S&P 500 has 72 days in which the index moves up or down by 1% or more.
So far in 2015 there have been 67 of those days, right on track to hit the average. On average, however, stocks usually gain a few per cent for the year.
“If we take [the number of 1% moves] and put it in context of a market’s trading range for that year, we conclude that the S&P 500 has travelled ‘extremely fast to go nowhere,'” JC O’Hara at FBN Securities wrote in a note to clients on Tuesday.
“Looking at the number of +/-1% moves this year versus the S&P 500 range year to date, we should have expected the market to have moved somewhere. “
We’ve previously written about the fact that a tiny number of stocks, also called the FANG stocks, are the only thing dragging the stock market into positive territory this year.
But despite some legitimately impressive upward moves for the likes of Facebook and Netflix, the bad news has kept the broader market from breaking out.
“We have spun our tires more this year than we have over the past 20 years,” wrote O’Hara. “Combine this with the fact that the heaviest volume has typically been isolated in large declining names, removing any genuine confidence that stocks are moving higher.”
O’Hara also puts it another way, showing that even on the days when stocks do incredibly well it’s only a few high flyers leading the way.
“There have been 36 days since 2010 when the S&P 500 closed up +2% or more on the day,” O’Hara wrote.
“The average Up to Down Volume Ratio was 39:1 for those days. Friday, the S&P 500 closed higher by +2.05%, yet the Up to Down Volume ratio was just 5:1, making it the lowest Up to Down Volume ratio on a day when the market closed higher by at least +2%.”
So for every 5 shares traded in companies that were up for the day, there was one that was traded in a company whose price declined. Said another way, only a few stocks were doing the “work” of dragging the market higher on Friday.
All in all, the seemingly staid market in 2015 has really been a cover for a lot of wasted energy.
The good stocks have done really well, the bad stocks have done really poorly, and the market is left with little movement in either direction. All that for nothing.