The Market's Anomalous Condition

The S&P 500 (SPX) has fallen 17.79% on a price basis and 17.45% on a simple arithmetic basis of all the trading days this year (183 total days). It is interesting that the returns for the individual days of the week are incredibly biased with aggregate returns by day as follows for the year:

MON               -10.55%

TUE                   +5.84%

WED                  -7.23%

THUR               +3.93%

FRI                    -9.44%

Simply put, if you were in the markets Tuesday through Thursday you would be up on the year. Conversely if you were short Friday to Monday you would also be up.

How does this stack up historically?

Since 1950, the days of the week played out as follows on average:

MON                -0.070%

TUE                 +0.032%

WED                +0.088%

THUR               +0.039%

FRI                  +0.073%

This of course begs the question – what is going on? Here is a possible explanation. A great deal of negative news, particularly in the financial sector, has come over the weekend. As a result, there is a pervasive fear to be invested over the weekend. Then come Mondays, a lack of good news has also sparked selling. In good times we will get large M&A deals over the weekend so there was always speculation of deals on Fridays and a desire not to be caught short over the weekend. However, the times are bad and not good right now.

These anomalous conditions will cease once the market turmoil has subsided. A return to the mean or normality will occur. However when this will play out right now is subject to more uncertainty than conventional wisdom.